The general rules for penalties are in FA 2007 Sch 24 2007, and apply to most taxes, including SDLT.
There is plenty of case law on HMRC penalties, but I’m not aware of any where a taxpayer was advised to obtain specific tax advice but didn’t. The following is my view based on applying the legislation, the principles in decided case law and my experience of HMRC’s approach in practice.
There is no penalty for an innocent mistake, which was neither careless nor intentional (although the tax and interest remain due).
Penalties will, however, apply under Sch 24 para 1 if a SDLT return contains an understatement of tax which was ‘careless’. Paragraph 3 says that an inaccuracy is ‘careless’ if it is due to failure by a taxpayer to take reasonable care.
The standard of ‘reasonable care’ is the behaviour which a prudent and reasonable person in the position of the taxpayer would adopt. That means one takes account of the taxpayer’s particular abilities and circumstances.
When you instruct an adviser, and provide them with complete facts, you are entitled to rely on their advice, even if it turns out your adviser was careless (unless the advice was manifestly unreasonable or you failed to provide the adviser with complete facts). So if (for example) Ms Rayner did not read HMRC guidance herself, that does not make her ‘careless’.
I think it is reasonable for a layperson to trust a conveyancer’s advice on stamp duty (not least for the very practical reason that any other conclusion would cause grave difficulties in the property market), and a trust lawyer’s advice on tax involving trusts. However your ability to rely on your conveyancer ends if the conveyancer advises you to speak to a specialist. That is what happened here.
My view is that a prudent and reasonable person in the position of Deputy Prime Minister would seek tax advice on a property transaction, particularly if they held legal title to another property, under a complex trust arrangement. My view is that, if the adviser told them they didn’t have expertise in the point, and suggested they receive specialist advice, a prudent and reasonable person would have obtained that advice.
As the First-tier Tribunal said in Lithgow [2012] UKFTT 620 (TC):
‘[R]eliance upon properly provided professional advice, absent reason to believe that it is wrong, unreliable or hedged about with substantial caveats, will usually lead to the conclusion that a taxpayer has not been negligent if he has taken and acted upon that advice.’
Here there was a ‘substantial caveat’, and Ms Rayner did not act upon the advice to obtain specific tax input. It follows that in my view Ms Rayner was almost certainly ‘careless’.
What is the level of penalties? The maximum penalty for ‘carelessness’ is 30% of the lost tax.
Carelessness penalties are reduced, potentially to zero, if a taxpayer approaches HMRC with the error – in tax parlance, they made an ‘unprompted’ disclosure (Sch 24 para 9(1E)(2)). But in Ms Rayner’s case, her correction is realistically ‘prompted’: she only obtained proper tax advice after a week of press scrutiny, and HMRC were already aware of the issue. That means that, under current HMRC practice, the level of penalties will usually be 15% to 30%.
I expect that, with reasonable cooperation from her advisers, the final level of penalties would be around 20% – so about £8,000 [given the additional SDLT liability of c.£40,000], plus interest of around £1,000.
I’ve discussed this with dozens of tax advisers. None thought ‘deliberate’ penalties could be in point. A few disagreed with me that Ms Rayner was careless (but that was very much a minority position). There was, however, rather more disagreement on whether I’m right to consider any disclosure ‘prompted’ – the circumstances are certainly unusual.
Home >Articles > Will Ms Rayner face HMRC penalties?
Will Ms Rayner face HMRC penalties?
I expect that she will.
The general rules for penalties are in FA 2007 Sch 24 2007, and apply to most taxes, including SDLT.
There is plenty of case law on HMRC penalties, but I’m not aware of any where a taxpayer was advised to obtain specific tax advice but didn’t. The following is my view based on applying the legislation, the principles in decided case law and my experience of HMRC’s approach in practice.
There is no penalty for an innocent mistake, which was neither careless nor intentional (although the tax and interest remain due).
Penalties will, however, apply under Sch 24 para 1 if a SDLT return contains an understatement of tax which was ‘careless’. Paragraph 3 says that an inaccuracy is ‘careless’ if it is due to failure by a taxpayer to take reasonable care.
The standard of ‘reasonable care’ is the behaviour which a prudent and reasonable person in the position of the taxpayer would adopt. That means one takes account of the taxpayer’s particular abilities and circumstances.
When you instruct an adviser, and provide them with complete facts, you are entitled to rely on their advice, even if it turns out your adviser was careless (unless the advice was manifestly unreasonable or you failed to provide the adviser with complete facts). So if (for example) Ms Rayner did not read HMRC guidance herself, that does not make her ‘careless’.
I think it is reasonable for a layperson to trust a conveyancer’s advice on stamp duty (not least for the very practical reason that any other conclusion would cause grave difficulties in the property market), and a trust lawyer’s advice on tax involving trusts. However your ability to rely on your conveyancer ends if the conveyancer advises you to speak to a specialist. That is what happened here.
My view is that a prudent and reasonable person in the position of Deputy Prime Minister would seek tax advice on a property transaction, particularly if they held legal title to another property, under a complex trust arrangement. My view is that, if the adviser told them they didn’t have expertise in the point, and suggested they receive specialist advice, a prudent and reasonable person would have obtained that advice.
As the First-tier Tribunal said in Lithgow [2012] UKFTT 620 (TC):
‘[R]eliance upon properly provided professional advice, absent reason to believe that it is wrong, unreliable or hedged about with substantial caveats, will usually lead to the conclusion that a taxpayer has not been negligent if he has taken and acted upon that advice.’
Here there was a ‘substantial caveat’, and Ms Rayner did not act upon the advice to obtain specific tax input. It follows that in my view Ms Rayner was almost certainly ‘careless’.
What is the level of penalties? The maximum penalty for ‘carelessness’ is 30% of the lost tax.
Carelessness penalties are reduced, potentially to zero, if a taxpayer approaches HMRC with the error – in tax parlance, they made an ‘unprompted’ disclosure (Sch 24 para 9(1E)(2)). But in Ms Rayner’s case, her correction is realistically ‘prompted’: she only obtained proper tax advice after a week of press scrutiny, and HMRC were already aware of the issue. That means that, under current HMRC practice, the level of penalties will usually be 15% to 30%.
I expect that, with reasonable cooperation from her advisers, the final level of penalties would be around 20% – so about £8,000 [given the additional SDLT liability of c.£40,000], plus interest of around £1,000.
I’ve discussed this with dozens of tax advisers. None thought ‘deliberate’ penalties could be in point. A few disagreed with me that Ms Rayner was careless (but that was very much a minority position). There was, however, rather more disagreement on whether I’m right to consider any disclosure ‘prompted’ – the circumstances are certainly unusual.
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