With the Finance Act 2007 penalty regime now fully operational, issues are arising in practice and the CIOT is continuing to raise points with HMRC. One point recently raised revolves round the penalty for carelessness in Finance Act 2007 Schedule 24 paragraph 1. The penalty is clearly directed against the taxpayer, but could it also encompass the adviser? On the surface, the person liable for a penalty referred to as "P" seems to include both the adviser and taxpayer because both could fall within the definition of "gives a document to HMRC". The changes made to paragraph 1 by Finance Act 2008 to cater for the new paragraph 1A do seem to open up this possibility more.
The adviser may be protected under Condition 2 – as there would be little chance the inaccuracy was due to their carelessness. Also, the introducing section – Finance Act 2007 section 97 – refers to ‘... imposing penalties on taxpayers ...’, so that does give the implication that the adviser cannot be penalised. In any event, if paragraph 1 could impose penalties on the agent, paragraph 18 etc of Schedule 24 would then not be needed – though that would not be the first time that legislation has been found to be unnecessary or misguided.
HMRC response
We put this to HMRC and their comments confirm that paragraph 1 does not impose penalties on advisers.
"HMRC will not be imposing penalties upon agents under Paragraph 1 of Schedule 24 to Finance Act 2007. The list of people whom we would expect to be potentially liable to a penalty can be found in our Compliance Handbook guidance (CH81040). Incidentally, our guidance on what may constitute "giving a document" can be found on the next page (CH81050).
"Primarily, a penalty cannot arise upon an agent under Paragraph 1 because the clear intention of the legislation is that the person becoming liable to a penalty under this penalty is the taxpayer. Indeed, as you have indicated, there would be no coherence to Paragraph 18 if this were not the case.
"Moreover, we would not usually expect agents to become liable to penalties under Paragraph 1A of Schedule 24, since we would not normally expect an agent to cause an inaccuracy in a return by deliberately supplying false information to the person making the return. Ordinarily, a tax adviser receives information from a person and then gives advice based on that information. It would be very unusual for a tax adviser, acting in that capacity, to give information to a person in a manner that would satisfy the necessary conditions for a penalty under this paragraph."
CIOT follow up
The HMRC response is welcome but it does raise the obvious question of the intention of the legislation perhaps not being as clear as it might be in the actual words used. We will be mentioning this as a concern to HMRC and in the meantime they are happy for us to publish the exchange of correspondence.
John Whiting
17 December 2009
