Whose penalty is it anyway? by Mark McLaughlin, CTA (Fellow) ATT (Fellow) TEP is Editor and a co-author of HMRC Investigations Handbook (Bloomsbury Professional)

Mark McLaughlin looks at penalties for tax returns errors and a specific provision which can affect an agent who prepares an inaccurate tax return on their client’s behalf

The penalty regime for errors in tax returns etc. (FA 2007, Sch 24) is generally familiar territory for practitioners involved with representing their clients in HMRC enquiries and investigations.

Many of those practitioners will have prepared client tax returns and accounts under enquiry. Whilst the penalty regime is primarily geared towards errors by the person to whom the tax return relates, what if the error was caused by the person’s agent?

‘It wasn’t me!’

The penalty regime for errors was extended (in FA 2008) to provide for penalties where an error in a taxpayer’s document is attributable to another person (FA 2007, Sch 24, para 1A). This is sometimes referred to as the ‘another person’ penalty.

In the above example of a tax return error, the other person (i.e., the taxpayer’s agent in this context) is liable to a penalty broadly if the error was attributable to the agent deliberately supplying false information (directly or indirectly) to, or withholding information from, the taxpayer with the intention of the return containing the inaccuracy.

Note the word ‘deliberately’ here; the agent would need to have known that the false information (or the withholding of information) would result in the taxpayer’s return containing an error that leads to what the legislation refers to as a ‘relevant inaccuracy’ (i.e., an understated tax liability, or false or inflated loss or tax repayment claim). The onus will initially be on HMRC to demonstrate that this is the case (see HMRC’s Compliance Handbook manual at CH81167).

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