TC09619 - [2025] UKFTT 01020 (TC)

Under Schedule 24 to the Finance Act 2007, a taxpayer who submits an inaccurate return is liable to a penalty. The amount of the penalty is a proportion of the potential lost revenue arising from that inaccuracy.

Where the inaccuracy is due to the deliberate but not concealed behaviour of the taxpayer, the maximum proportion is 70% of the potential lost revenue.

A penalty can be reduced if the taxpayer assists HMRC whilst they are considering his tax position. This is called disclosure.

If HMRC think it is right because there are special circumstances, HMRC can reduce a penalty. If they fail to do so, then on appeal an appellant can challenge HMRC’s decision not to so reduce a penalty, but only if that decision was flawed in the judicial review sense.

The Supreme Court considered the meaning of “deliberate” in relation to whether there was a deliberate inaccuracy in a document in HMRC v Tooth [2021] 1 WLR 2811(“Tooth”) in which it said:

“42.

The question is whether it means (i) a deliberate statement which is (in fact) inaccurate or (ii) a statement which, when made, was deliberately inaccurate. If (ii) is correct, it would need to be shown that the maker of the statement knew it to be inaccurate or (perhaps) that he was reckless rather than merely careless or mistaken as to its accuracy.

43.

We have no hesitation in concluding that the second of those interpretations is to be preferred, for the following reasons. First, it is the natural meaning of the phrase “deliberate inaccuracy”. Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely “inaccuracy”. An inaccuracy in a document is a statement which is inaccurate. Thus the required intentionality is attached both to the making of the statement and to its being inaccurate”.

Although this was said in relation to a different statutory provision (s 29 TMA) the Supreme Court recognised, at [33] and [45], the alignment of the language used with that of the schedule 24 penalty provisions. Accordingly, for there to be a “deliberate” inaccuracy HMRC have to establish an intention “to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement or, perhaps, (although it need not be decided on this appeal) recklessness as to whether it would do so”. (see Tooth at [47])

HMRC’s case that the appellant’s behaviour was deliberate was set out in the penalty explanation letter. In their view the appellant’s job did not require him to incur expenses (something which was confirmed by Arriva); he had claimed expenses on costs incurred during the Covid pandemic, yet he had claimed them both before and after the pandemic; and notwithstanding repeated requests for evidence and a breakdown of the expenses, the appellant had not supplied these.

HMRC have also submitted that evidence of deliberate behaviour comes from the amendments made to the appellant’s tax returns as set out in Appendix 2. These amendments were conscious decisions made by the appellant, and the variety of numbers used by the appellant in those amendments demonstrate that he did not know what his expenses were. And that he was seeking to mislead HMRC as to the accuracy of those numbers.

The appellant’s position was that the amounts claimed were an accurate reflection of the expenditure incurred on the alleged items, as were the amendments to his returns.

For the reasons already given, we have rejected the appellant’s position. He has provided insufficient evidence that he incurred the expenditure as alleged or at all.

The appellant was not able to say when the rodents purportedly destroyed his primary records. But he did not say that the amendments he made to his tax returns as set out in Appendix 2, were made on the basis of those records. We find as a fact that when he amended his returns, he did not have the records of the alleged expenditure before him.

In our view, even if the appellant had incurred expenditure as he alleges (which we seriously doubt) the amounts originally claimed and as subsequently amended in the amendments to his returns were not based on the precise amount of such alleged expenditure. And the appellant knew this. The round sum amounts set out not only in the original returns but also in his amended returns, did not reflect the precise amounts of any expenditure.

We have no hesitation, therefore, in agreeing with HMRC that the appellant’s behaviour in respect of the original returns and as amended, was deliberate. He knew that the expenditure had not been incurred either at all or in the amounts claimed, yet he presented the amounts as a truthful reflection of allowable expenditure. He did this seeking to mislead HMRC.

We therefore uphold the penalty.

HMRC consider that there are no grounds for making a special reduction. We agree. The appellant’s circumstances are not sufficiently special to warrant a reduction. Neither the rodent infestation nor the Covid pandemic nor his financial situation are sufficiently special that the penalty should be reduced, bearing in mind that he has made what in our view have been excessive claims which are based on what is tantamount to fraudulent behaviour (see Tooth at [83]). Furthermore, the appellant has not been able to persuade us that HMRC’s decision not to reduce the penalty is flawed.