Penalty Suspensions

Careless inaccuracies

The recent case of a self-employed locum pharmacist Mr Bharat Patel TC04617: BHARAT PATEL [2015] UKFTT 445 (TC) offers encouragement to those asking HMRC to consider suspending penalties for ‘careless inaccuracies’ in their tax affairs.

By way of context, where an error in a taxpayer’s affairs results from behaviour deemed to be ‘careless’ (as opposed to negligent or fraudulent), HMRC may suspend the penalties subject to certain conditions being met over a future period.  Provided the suspension conditions are satisfied, the penalties then fall away.

Mr Patel

Mr Patel’s case is reasonably colourful, and essentially involved him claiming a deduction against trading income for amounts invested in guaranteed equity bonds. Mr Patel’s view was that acquiring these investments in his personal name to support him in his retirement amounted to contributions to a “self investment personal plan” (sic).

A self-invested personal pension (or “SIPP”) is in fact a trust arrangement which must be formally registered, and Mr Patel’s set up inevitably failed to achieve its intended tax treatment. As a result, HMRC raised an enquiry into his personal Tax Returns and also an enquiry into the tax affairs of his company (which at the time of the enquiry was dormant, but through which he intended to carry out his pharmacist activities through in the future).

HMRC may issue penalties where an inaccuracy in a Return has been careless or deliberate. Therefore, as well as the additional tax due as a result of the error, HMRC also issued penalties of £9,501. The tribunal found that these penalties were chargeable as Mr Patel’s conduct in claiming the deduction had indeed been careless.

HMRC may suspend a penalty for a careless inaccuracy only if compliance with a condition of suspension would help the individual avoid further penalties for a careless inaccuracy. Typically this involves engaging professional support in preparing future tax filings to avoid further careless errors.

In this case, HMRC resisted the prospect of suspending the penalties against Mr Patel on the basis that he would conduct his locum pharmacist business through the company in future and therefore the conditions imposed under the penalty suspension regime would be directed at his company rather than him personally.

Fortunately for Mr Patel, the FTT found in favour of Mr Patel as he would continue to file personal Tax Returns to report his income from the company and therefore the conditions of the penalty suspension can be applied to him personally.

The case is interesting and significant, as it provides useful precedent for arguing that penalties for even fairly fundamental failings in a taxpayer’s affairs should be suspended if they are minded to seek professional support going forward. This provides useful ammunition for us as advisors, and we anticipate greater success in arguing for suspension conditions to be applied in future with the findings of this case to support us.

Should you require any assistance with disputes with HMRC and or suspending penalties, please contact us.