The taxpayer disposed of shares in a private company, of which they were employed, realising a capital gain. The gain was not included on taxpayer’s 2011 Tax Return, which the taxpayer had filed themselves without representation. At the time of the sale, the taxpayer set aside funds (in their spouse’s name) to meet the capital gains tax liability. However, when it came around to completing and delivering the 2011 Tax Return, the taxpayer inadvertently neglected to declare the gain. In April 2011, the taxpayer was diagnosed with depression leading to their resignation from their role in the company in Spring/Summer 2011.
HMRC charged a penalty on the basis that as an FCCA qualified accountant and experienced finance director the taxpayer knew the disposals needed to be included, thus the inaccuracy was deliberate. In addition to the tax and interest being sought, the penalty was set at 35% of the tax put at risk. The taxpayer appealed.
The verdict at Tribunal was that as the taxpayer’s professional background was in industry, they would not have been unfamiliar with tax returns other than the aspects dealt with every year on their own personal tax return. The Tribunal’s decision stated that it was plausible that, while able to deal with the normal areas of the tax return the taxpayer dealt with every year, the depression meant they had simply not considered the gain when preparing their 2011 Tax Return. On the balance of probabilities, the taxpayer did not file the tax return in the knowledge that it was inaccurate, nor did they choose consciously to not find out the correct position.
HMRC did not discharge the burden of proof to show the return was deliberately inaccurate and the penalty was reduced to the minimum for a careless error, namely 15%.
Mark Taylor, Head of Tax Investigations and Dispute Resolution at Buzzacott, said of this case “This is just one of a number of recent cases where HMRC have taken a harder line on penalties particularly with regards a professional in the financial sector. Should mental health issues be raised as a defence in penalty cases, it can be difficult without evidence for HMRC to judge the gravity and severity of any problem or the dates on which it affected the taxpayer. Therefore, details of any medical record that would assist in order to provide evidence of their condition at the time may have to be obtained and disclosed.’’.
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