Mark McLaughlin highlights a potential danger for taxpayers who rely on their advisers to deal with HMRC on their behalf.
“I left everything to my adviser” might seem like an acceptable approach to take. Taxpayers may also be forgiven for thinking that it provides them with a reasonable excuse if something goes wrong with their tax affairs.
Is it ‘reasonable’?
HM Revenue and Customs (HMRC) has powers to obtain information and documents (subject to limited exceptions) and can issue an information notice requiring the taxpayer to provide information or produce a document if it is reasonably required to check a taxpayer’s tax position (FA 2008, Sch 36). HMRC can impose penalties for failing to comply, subject to a right of appeal.
There is a possible escape from penalties if there is a ‘reasonable excuse’ for failing to comply with an information notice. However, is a person’s reliance on a third party (such as a professional adviser) a reasonable excuse? HMRC’s Compliance Handbook Manual (at CH26440) states: “Any failure by the third party will be a reasonable excuse only if the person took reasonable care to try to avoid the failure or obstruction.”
Blind trust?
Whilst using a tax professional to assist with their obligations is a prudent step for taxpayers to take, it does not provide an automatic ‘get out of jail free’ card if problems arise, particularly if the taxpayer abdicates all responsibility to their adviser or blindly follows their advice.
For example, in Hill & Anor v Revenue and Customs [2024] UKFTT 844 (TC) the appellants (H and M) were administrators of different pension schemes. HMRC issued information notices to H and M. At the time, a company (LD) operated the pension schemes on the administrators’ behalf. Following receipt of the information notices, LD engaged tax advisers (IT) on the appellants’ behalf. LD advised the appellants that IT’s view was that, as the pension schemes had been wound up, there “should be no need to respond” with the information requested by HMRC in the information notices. IT subsequently informed HMRC that the relevant pension schemes had been wound up, so there could be no liability to produce information or documents. HMRC replied advising that H and M remained individually liable to comply with the information notices. HMRC subsequently issued penalties for their failure to do so. The appellants appealed.
The First-tier Tribunal (FTT) concluded that the appellants had not taken reasonable care to consider whether it was reasonable to rely on their advisers and the advice provided. H and M had effectively relied on short emails from LD, which largely lacked particular detail as to what was being said to HMRC on their behalf, and had not checked information provided to them. Their reliance on the advice was not objectively reasonable. The appellants stated that they were worried about the risk to their pensions and so relied on the advisers. However, the FTT considered that in such circumstances a reasonable and prudent taxpayer would have asked questions to ensure that the perceived risk was being properly managed. The FTT concluded that neither appellant had a reasonable excuse for failing to comply with the information notices and upheld the penalties.
Practical tip
The FTT judge in Hill & Anor summed up the position well: “Whilst a taxpayer is not required to second-guess their adviser, or to obtain multiple opinions, it is clear that they are required to take reasonable care in relying on their adviser.”
