[2012] UKFTT 620 (TC)
TC02296
Appeal number: TC2011/09646
Penalty. Reliance upon accountant. AB v HMRC [2007] STC 99 and Wald
v HMRC [2011] UKFTT 183 explained and reconciled.
FIRST-TIER TRIBUNAL
TAX CHAMBER
MICHAEL
ANDERSON LITHGOW Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
& CUSTOMS Respondents
TRIBUNAL: JUDGE GERAINT
JONES Q.C.
The Tribunal first determined
the appeal on 06 June 2012 without a hearing under the provisions of Rule 26 of
the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default
paper cases) having first read the Notice of Appeal dated 11 November 2011 and
HMRC’s Statement of Case submitted on 18 January 2012. The Appellant has now requested
full written reasons.
© CROWN COPYRIGHT
2012
1. The
appellant, Mr Lithgow, entrusted the task of filing his tax returns to his
agent, Mr Gerard Mone, who trades as GM Accounting Limited.
2. His
agent, for whatever reason, failed to file the appellant's tax return for 2009/2010
until 7 December 2011. HMRC says that it returned that tax return to the
appellant because it was "deemed incomplete". HMRC alleges that it
remains outstanding. Whilst I need not decide that issue, if a tax return was
filed, then it is not for HMRC to decide to reject it, albeit that it may
require further information in respect of any missing detail.
3. HMRC
has issued two late filing penalties, each in the sum of £100.
4. This
appeal has been put on the basis that the appellant's agent, Mr Mone, or, more
properly, GM Accounting Ltd, was unable to make the necessary filing on time
because of various issues of ill-health, including terminal leukaemia suffered
by Mr Mone’s elderly father. Mr Mone says that he runs a small one man
accountancy practice, with no employees. Thus, he says, when he cannot give his
personal attention to his client's affairs, they simply do not get dealt with.
5. Whilst
I can sympathise with the predicament in which Mr Mone found himself, the issue
that I have to decide is whether the appellant (not Mr Mone) had a reasonable
excuse for not filing on time. That requires an excuse to be put forward which,
when judged objectively, can be said to be reasonable; no more, no less.
6. Whilst
an excuse has been put forward I cannot take the view that the failings of a
professional agent can ordinarily be considered objectively reasonable as an
excuse. If that was the position, then professional agents would be able to
ignore deadlines for filing or undertaking other tasks safe in the knowledge that
their clients could not be penalised because the clients would simply point to
the failings of their various professional agents.
7. The
appellant could, and in my judgement should, have instructed his accountant to
make the filing by the deadline and, if advised that his agent was unable to
comply with the construction, to have made alternative arrangements.
8. The
decision of this Tribunal in Wald v HMRC [2011] UKFTT 183 (TC) at
paragraph 15 of that Determination sets out that an appellant will remain responsible
if there are errors in the tax return due to the negligence of his retained
accountant whilst acting on his behalf. The Tribunal points out that it may
well be that the taxpayer has some recourse against the accountant; but that is
a separate matter.
9. I
also refer to the decision of the Tribunal in AB v HMRC [2007] STC (SCD)
99, a case involving complicated facts concerning the deductibility of
various expenses when computing profits. However, for present purposes the case
also involved the issue of penalties in respect whereof the Tribunal (Sir
Stephen Oliver QC and Dr. N. Brice) held that :
10. “105. We are
of the view that the question whether a taxpayer has engaged in negligent
conduct is a question of fact in each case. We should take the words of the
statute as we find them and not try to articulate principles which could
restrict the application of the statutory words. However, we accept that
negligent conduct amounts to more than just being wrong, or taking a different
view from the Revenue. We also accept that a taxpayer who takes proper and
appropriate professional advice with a view to ensuring that his tax return is
correct, and acts in accordance with that advice (if it is not obviously
wrong), would not have engaged in negligent conduct.”
11. I consider the
approach taken in AB to be the correct approach. A taxpayer is only
liable to a penalty if he has been negligent. There are few who would gainsay
the proposition that tax law can be complicated and difficult for taxpayers to
understand and, thus, it is only to be expected that, from time to time,
taxpayers will resort to professional advice. The purpose of resorting to
professional advice is that one normally expects to be able to rely upon it,
whether that professional advice is taken from a lawyer, an accountant or a
medical practitioner. We consider it difficult to understand how a taxpayer can
be negligent if, perceiving the need for professional advice on a matter of
difficulty or in a situation where the taxpayer is in doubt as to the proper
approach to be taken, he then seeks, and relies upon properly considered
professional advice.
12. In my judgement,
if the advice of a professional, in the sphere of tax matters usually an
accountant, is negligently provided, that negligence is not to be imputed to
the taxpayer. The question is whether the taxpayer was negligent. He
cannot be principally or vicariously liable for the negligence of his
professional adviser unless the factual circumstances in which the advice is
given indicate that a matter is fraught with difficulty and doubt, with the
professional adviser giving no more than his honest opinion about which side of
a sometimes difficult line, the facts of a particular case happen to fall. It
is contrary to the very notion of negligence (that is, a failure to take
reasonable care) that the person who perceives there to be doubt or difficulty
and then sets out to take the advice of a professional person whom he believes
will be able to resolve that doubt or difficulty, can be said to be negligent
if he then relies upon that properly provided advice (even if it turns out to
be wrong).
13. Accordingly, I
decline to follow the reasoning in paragraph 15 in Wald, as it seems to
me to be counter-intuitive to speak about a taxpayer being negligent when he has
placed his affairs in the hands of an accountant or sought specific advice on a
specific matter and the professional adviser has then been negligent in
providing that advice.
14. In my judgement,
the two different decisions to which I have referred are properly reconcilable
on this basis. If a taxpayer claims that his accountant has been negligent, for
example, by failing to meet a deadline for filing a return or undertaking some
or other administrative task, then the negligence of the accountant will not usually
provide a defence to a penalty because the accountant is simply acting as the
taxpayer's agent or functionary in filing the document that needs to be filed
by a particular deadline. In other words, he is acting as an agent or
functionary for his principal; but not as an independent professional adviser.
However, in a situation where a professional adviser is not retained simply to
act as a functionary, but is retained to give professional advice based upon
the best of his skill and professional ability, he is not then a functionary or
agent for his principal. He is a professional person acting under a retainer to
give professional advice upon an identified issue. He is bound to provide that
advice to the best of his professional skill and ability, whilst taking
reasonable care in and about preparing and giving that advice. In other words,
he is acting as a true professional, rather than as an agent or functionary.
15. In my judgement,
where an accountant acts as an administrator or functionary, he is acting as
the taxpayer’s agent and his default (whether negligent or not) will usually
provide a taxpayer with little opportunity to claim that he is not in default
of a particular obligation. However, when a professional acts in a truly
professional advisory capacity, the situation is otherwise and reliance upon
properly provided professional advice, absent reason to believe that it is
wrong, unreliable or hedged about with substantial caveats, will usually lead
to the conclusion that a taxpayer has not been negligent if he has taken and
acted upon that advice.
16. This is a case
where the accountant agent was a mere functionary. Accordingly the appeal must
be dismissed.
17. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
GERAINT
JONES Q.C.
TRIBUNAL JUDGE
RELEASE DATE: 3 October 2012
