[2025] UKUT 00377 (TCC)

The test for a deliberate inaccuracy is set out by the Supreme Court in HMRC v Tooth [2021] UKSC 17 at [47]:

“For there to be a deliberate inaccuracy in a document within the meaning of section 118(7) there will have to be demonstrated 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.”

The Upper Tribunal in CPR Commercials Ltd v HMRC [2023] UKUT 61 (TCC) stated at [23] that:

“Where a taxpayer suspects that a document contained an inaccuracy but deliberately and without good reason chooses not to confirm the true position before submitting the document to HMRC then the inaccuracy is deliberate…However, the suspicion must be more than merely fanciful.”

and further at [39]:

“The conclusion that CPR was ‘at least reckless’ is not a finding that CPR had actual or blind-eye knowledge of any error… and accordingly did not support a finding that CPR was liable to a penalty for deliberate inaccuracy.”

The FTT found at [150] that:

The FTT concluded that the Appellant’s conduct was deliberate, stating at [153]:

“I have also found that the inaccuracies were deliberate. The Appellant rendered returns which understated his liability to tax in each year knowing or turning a blind eye to whether they were incorrect.”

Ms Duncan submits that no contemporaneous evidence was cited by the FTT demonstrating that the Appellant actually intended to mislead HMRC, or that he held a specific awareness that his returns were inaccurate. Indeed, the burden of proof to demonstrate that a taxpayer’s behaviour is deliberate lies with HMRC.

She also argues that the FTT adopted the phrase “knowing or turning a blind eye” in respect of his rendered returns ([153]) but made no finding that the Appellant possessed actual knowledge of an inaccuracy, nor that he had a non-fanciful suspicion of an inaccuracy which he consciously ignored.

Ms Duncan contended that the FTT did not consider whether the Appellant’s filing of asserted inaccurate returns was motivated by confusion or neglect rather than deliberate concealment. Its reasoning was thus a misdirection in law material to both the penalty (and by extension discovery) findings.

I do not accept this ground is arguable. Ms Duncan argued that the FTT applied the wrong test at [153] and that there was no evidence or reasoning in support of its finding of deliberate conduct on the Appellant’s part. She contended that the authorities make clear that constructive knowledge or carelessness cannot establish “deliberate” behaviour. There must be either: 1. a demonstrated intention to mislead; or 2. a non-fanciful suspicion consciously ignored. She submits that the FTT’s reasoning at [153] – “knowing or turning a blind eye” – does not satisfy either condition. It substitutes inference from outcome for evidence of intent. She submits that the expression in [150(32)] “should have been obvious” denotes constructive knowledge – a hallmark of carelessness, not deliberate conduct.

This ground is not arguable. I am satisfied that the FTT correctly summarised the principles at [12] of the Decision as to what constitutes a deliberate inaccuracy. As such, there is a strong presumption that it applied the principles correctly:

“12.

It will be established that an inaccuracy is brought about deliberately where it can be shown that the taxpayer intended to mislead HMRC when providing them with a document (including a self-assessment return) which he knew was inaccurate and with the intention that HMRC would rely on the inaccurate document (see HMRC v Raymond Tooth [2021] UKSC 17). Deliberate conduct may also be established where the taxpayer suspects that a document rendered to HMRC is inaccurate and turns a blind eye to whether it is inaccurate (see CPR Commercials Ltd v HMRC [2023] UKUT 00061 (TCC)).”

It is right that the FTT’s finding at [150(32)] that the Applicant may have had constructive knowledge or means of knowledge (that it would or should have been obvious to the Applicant that the returns were inaccurate), would be an insufficient basis on which to make a finding of deliberate conduct. It relies on an objective test equating to objective recklessness – failure to give thought to an obvious risk rather than a subjective finding of actual knowledge or blind eye knowledge – deliberately and without good reason choosing to ignore a reasonable suspicion.

Nonetheless, any error is not material because this was merely part of the supportive reasoning in relation to its actual conclusions. The FTT went on to make explicit findings at [150(33)] that the Applicant deliberately rendered a return he knew to be inaccurate and at [153] that he rendered inaccurate returns understating his tax liability and knew or turned a blind eye to the returns being incorrect. It therefore came to two explicit conclusions that accord with the level of mental state required for deliberate conduct and it applied the correct legal test.

At [26] of the Grounds, Ms Duncan argued that the FTT “made no finding that the Appellant possessed actual knowledge of an inaccuracy”. In her supplementary submissions she argues that that findings at [150] do not establish deliberate behaviour. She argues that the FTT articulated the correct legal framework in general terms at [12] yet applied a different standard in substance when reaching its conclusion at [153]. The findings at [150(1)]–[150(39)] of the Decision concern record-keeping, credibility, and residence, but do not show an intention to mislead.

She also argued that much of the reasoning in [150(3)], [150(27)], and [150(32)] rests on assertions that the Applicant “should have known” or “failed to evidence” the accuracy of his returns. However, the Decision does not explain why it would have been reasonable to expect the Appellant personally to have identified the alleged inaccuracies, particularly given his reliance on professional advisers, residing abroad, and the complex cross-border context in which the returns were prepared. The analysis therefore does not engage with the Applicant’s individual circumstances or with the high threshold set by Tooth for establishing a deliberate intention to mislead. In the absence of clear reasoning as to how the Appellant’s state of knowledge met that test, the conclusion at [153] is unsustainable on the findings made.

I reject these arguments. In reality, this was an Edwards v Bairstow challenge to factual findings made by the FTT on the basis that it provided no or insufficient evidence or reasons in support of the findings. This is a high threshold to meet and it is not met in this case. The FTT’s findings and reasoning in support must be read as a whole and in context. The FTT’s findings of fact are clearly and helpfully set out in 39 numbered sub-paragraphs at [150] as well as at [152]-[153]. At [150(33)], the FTT makes an explicit finding of fact of actual knowledge that: “…the Appellant deliberately rendered to HMRC tax returns which he knew to be incorrect”.

It made a number of adverse findings as to the Applicant’s credibility based on the lack of evidence provided by him on a number of matters or the inconsistency of his evidence with other documentary evidence at [150]. For example, it found that the Applicant was operating an off-record property management business at (1)-(7) of [150] the income from which he did not record in business records nor declare to his accountants or those preparing his accounts and returns:

Ms Duncan submits that the Decision at [150(1)]–[150(7)] pertains to findings relating to use of private accounts, alleged risky practices, and missing records. These may justify a finding of carelessness (which is not admitted) but not deliberate conduct.

I reject this argument. The findings do not amount to carelessness but amount to the Applicant deliberately not providing full records of activities so as to avoid disclosing the income from his off-record property management business.

She argues that the FTT accepted at [150(5)] that professional advisers prepared the accounts but did not assess whether the Appellant relied upon them in good faith. The omission is material. Tooth at [47] requires evidence of intention to mislead, not confusion or misplaced reliance.

Again, I reject this. The FTT found that the Applicant did not provide full records to those producing his accounts and tax returns. It made other findings of an intention on his part to mislead HMRC. This could not reasonably permit of any possibility that he relied on the accounts produced by professional advisers in good faith as the finding is to the effect that he deliberately did not provide all the relevant information for the accounts to be prepared accurately.

At [150(17)-(30)] the FTT made further adverse findings against the Applicant to the effect that he received income from undeclared trading in his bank accounts which he did not declare to HMRC:

Ms Duncan submits that [150(17)]–[150(30)] of the Decision concerned findings on the Applicant’s Isle of Man and UK bank accounts, frequency of deposits, and inconsistencies in explanation. These go to source of income but not to the Applicant’s state of mind at the time the returns were signed. She argues that none of the findings in [150(1)]–[150(39)] identify a single contemporaneous document or communication evidencing the Appellant’s knowledge of falsity or suspicion of error when signing the returns.

Again, I reject this – the FTT finds that the Applicant has consciously, deliberately and repeatedly underdeclared turnover and income in a number of contexts (to HMRC, to banks and to the FTT) and this supports the findings and accompanying reasons at [150(32)] that he deliberately did so when not declaring or understating it on his tax returns.

The FTT gave specific reasons founded in the evidence at [150(32)], the number and total value of deposits not declared in the tax returns, in support of its conclusions at [150(33)] and [153]. It gave further reasons at [150(34)-(35)] in support of a finding that the Applicant had an intention to mislead HMRC in a number of regards. This also supports its conclusions of an intention to mislead in making declarations and actual knowledge of inaccuracies in the tax returns.

The FTT drew reasonable inferences from the evidence, or lack of evidence, to which it referred which it was entitled to draw. It made rational findings that it was entitled to make – it made findings that a properly instructed could reasonably make on the evidence before it:

“150…(32) The number and total value of the deposits is significant in total and on a year in year basis. When signing the return declarations it would or certainly should have been obvious to the Appellant that they were incorrect and that by signing the return HMRC would rely on the return and the declarations.

(33)

I consider that the Appellant deliberately rendered to HMRC tax returns which he knew to be incorrect. The figures are material.

(34)

Whilst not directly relevant to whether the returns were rendered on the basis that they were deliberately inaccurate I also note that the Appellant has sought to and actively mislead HMRC on a number of occasions:

(a)

By asserting that for 2012/13 he was not resident in the UK and was resident in South Africa despite the basis on which his returns were rendered and having only spent 9 days in South Africa. The Tribunal was also misled in this regard.

(b)

He has asserted that he has correctly accounted for all income, in particular the interest on the IoM accounts, in South Africa but SARS has confirmed that he did not.

(c)

His explanation for the deposits has varied over time evolving as each previous explanation was refuted or challenged.

(35)

A further propensity to mislead is demonstrated by the Appellant’s explanation of the reason for recording £80,000 on one of the UK bank accounts (i.e. that the account was opened with an aim of securing a mortgage) and his explanation for not completing returns on the basis that he was non-resident (again stated to be for mortgage purposes).

…

153.

I have also found that the inaccuracies were deliberate. The Appellant rendered returns which understated his liability to tax in each year knowing or turning a blind eye to whether they were incorrect.”

Ms Duncan argues that the FTT made a conclusive finding unsupported by contemporaneous evidence or analysis of intent. No documentary evidence is cited or identified in support of the conclusion at [153].

She also contends that the FTT relied on inconsistencies in explanations over time at [150(34)]–[150(35)]. These findings concern inconsistent explanations and post hoc justifications. Even if accepted (which it is not), those inconsistencies do not prove an intention to mislead at the time of filing, which is the material moment under Schedule 41 FA 2008 and section 118(7) TMA 1970. Accordingly, while the FTT cited the correct legal principle in form, it applied a lower threshold in substance. It treated the mere absence of corroborative material and changes in explanation as sufficient to infer deliberateness, rather than examining whether there was any proven intention to mislead. The Appellant’s position has always been that his actions were consistent with a genuine belief in the accuracy of his returns at the time of submission, and the FTT’s failure was in elevating evidential gaps into proof of deliberate conduct, contrary to the test in Tooth.

For the reasons set out above, I reject all these arguments. The FTT provided sufficient and rational reasons, founded in the evidence it identified and to which it referred, made reasonable inferences it was entitled to make in support of adverse conclusions at [150(33)] and [153] which were repeated and satisfied the correct legal principles on deliberate inaccuracy.

I refuse permission on Ground 2.