Where there has been a loss of tax by reason of the careless conduct of the taxpayer, a penalty may arise under FA 2008 Sch 24. (Much worse penalties arise if the loss of tax arose from a deliberate attempt to mislead HMRC.)
Carelessness is essentially the failure to take reasonable care or to have a reasonable excuse, as explained in detail in Perrin v HMRC [2018] UKUT 156 (TCC) and in Hextall v HMRC [2023] UKFTT 390 (TC) – and numerous other cases. It was described in the following terms by Judge Medd in the Clean Car Company [1991] VATTR 234:
‘One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?’
In the recent case of Krason v HMRC [2026] UKFTT 675 (TC), Mr Krason had not paid the right amount of tax and HMRC took the view that this was due to Mr Krason’s deliberate conduct (which is a pretty serious allegation giving rise to equally serious penalties). No it was not, said the First-tier Tribunal.
So HMRC then claimed he must have been careless – but the FTT did not agree with that either. It found that every one of HMRC’s reasons was wrong.
These reasons put forward by HMRC were:
1. he did not obtain any written advice concerning the transactions, and the reasonable person would have done this ‘to protect his position’ or ‘to cover himself’; Wrong – no need.
2. he did not consult a lawyer when [his accountant] gave him details of the scheme; Wrong – no need.
3. he did not attempt to understand what he was doing so he could satisfy himself that it was a legitimate scheme, and in particular:
did not compare the 11% he was paying, to other information about the scheme, and had he done so this would have shown that he had misunderstood the term ‘contributions’; Wrong – no need.
he did not question how the scheme could possibly work when no monies existed within the PMC which could be loaned to him; he should have questioned how it was still a trust contribution if one immediately withdrew the money back after making the payment to the PMC; Wrong – no need.
4. he should have checked his SA returns and asked questions about the other business expenses. Wrong – no need.
No two cases are the same and the facts will always be important – but when faced with these arguments by HMRC (which many advisers and taxpayers will be), the taxpayer clearly does have some good reasons to stand their ground.
Where there has been a loss of tax by reason of the careless conduct of the taxpayer, a penalty may arise under FA 2008 Sch 24. (Much worse penalties arise if the loss of tax arose from a deliberate attempt to mislead HMRC.)
Carelessness is essentially the failure to take reasonable care or to have a reasonable excuse, as explained in detail in Perrin v HMRC [2018] UKUT 156 (TCC) and in Hextall v HMRC [2023] UKFTT 390 (TC) – and numerous other cases. It was described in the following terms by Judge Medd in the Clean Car Company [1991] VATTR 234:
‘One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?’
In the recent case of Krason v HMRC [2026] UKFTT 675 (TC), Mr Krason had not paid the right amount of tax and HMRC took the view that this was due to Mr Krason’s deliberate conduct (which is a pretty serious allegation giving rise to equally serious penalties). No it was not, said the First-tier Tribunal.
So HMRC then claimed he must have been careless – but the FTT did not agree with that either. It found that every one of HMRC’s reasons was wrong.
These reasons put forward by HMRC were:
1. he did not obtain any written advice concerning the transactions, and the reasonable person would have done this ‘to protect his position’ or ‘to cover himself’; Wrong – no need.
2. he did not consult a lawyer when [his accountant] gave him details of the scheme; Wrong – no need.
3. he did not attempt to understand what he was doing so he could satisfy himself that it was a legitimate scheme, and in particular:
did not compare the 11% he was paying, to other information about the scheme, and had he done so this would have shown that he had misunderstood the term ‘contributions’; Wrong – no need.
he did not question how the scheme could possibly work when no monies existed within the PMC which could be loaned to him; he should have questioned how it was still a trust contribution if one immediately withdrew the money back after making the payment to the PMC; Wrong – no need.
4. he should have checked his SA returns and asked questions about the other business expenses. Wrong – no need.
No two cases are the same and the facts will always be important – but when faced with these arguments by HMRC (which many advisers and taxpayers will be), the taxpayer clearly does have some good reasons to stand their ground.
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