A taxpayer who had a £14,365 penalty imposed on him for incorrectly claiming a capital gains tax relief on his 2009 self assessment tax return, successfully had the penalty overturned by the First Tier Tax Tribunal.
Claiming a Capital Gains Tax Relief
Mr J R Hanson made a capital gain on the disposal of loan notes in the year ended 5th April 2009 amounting to over £1 million. Clarke Broome Fleming (CBF), Mr Hanson’s long standing accountants initially concluded that Entrepreneurs Relief was not available to help reduce the capital gains tax (CGT) but sometime after this Mr Hanson was given a press cutting by a financial adviser suggesting that UK holiday letting properties could be used to mitigate a CGT charge. Mr Hanson had already purchased such a property and consulted his accountants. CBF then indicated that a form of holdover relief would be available to mitigate the CGT charge.
When it came to preparing and filing his 2009 self assessment tax return, Mr Hanson instructed CBF to undertake the task and the accountants accepted in evidence that their client was relying on them to complete it correctly. CBF described themselves as a “high-street practitioner” and regretted that they did not carry out a second review before the tax return was filed and also that they had not sought specialist advice from a tax consultant.
The CGT pages of the 2009 return simply showed the net chargeable gain after deduction of relief without identifying the amount of relief claimed.
In August 2010, HMRC opened an enquiry into the CGT aspect of the 2009 tax return only. As part of their response, CBF provided the Revenue with a computation showing a claim for Entrepreneurs Relief of just under £0.5 million. When HMRC requested further explanations of the claim CBF said that the reference to Entrepreneurs Relief was a mistake and it was a claim to roll-over relief. It was then pointed out to CBF by the Revenue that roll-over relief was not available at which point the accountants changed tack again stating the claim was for hold-over relief. Ultimately, however, CBF accepted that no relief was available and as a result an additional tax liability of £83,278 arose.
During the course of the enquiry CBF did consult an external tax consultant who initially indicated that some form of relief was available but once he had reviewed the file more thoroughly advised that this was not the case.
Careless Inaccuracy in the Tax Return
As well as the additional CGT, HMRC also charged a penalty of over £14,000 for a careless inaccuracy in the tax return.
For several years now penalties for inaccuracies in returns have been behavioural based, ie dependent upon the degree of carelessness, with the amount of penalty being charged as a percentage of the potential tax lost. Where a person relies upon information provided by a professional advisor to prepare their tax return and the return is completed erroneously, then provided the taxpayer has taken reasonable care, the penalty can be expunged. In this case the standard amount of penalty, subject to reductions, was 30%.
The judge had no hesitation in finding that was carelessness on the part of CBF as the entitlement to CGT relief was an area that a reasonably competent accountant ought to have been able to advise upon. Mr Hanson had no reason to doubt his accountant’s competence or their advice and was therefore entitled to rely on their advice without need to consult the legislation or any HMRC guidance. As such, the appeal was allowed and the penalty cancelled.
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