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Professional Indemnity Insurance
Waseem Shakoor v The Commissioners for Her Majesty’s Revenue & Customs
This recent decision of the Tax Tribunal considered whether a tax payer who relied on professional advice from their accountant in relation to a tax return, which ultimately turned out to be wrong, acted negligently so as to give rise to a penalty.
Background
The appellant, Mr Shakoor, appealed against an assessment to Capital Gains Tax (“CGT”) in the sum of £49,014 plus a 70% penalty. Mr Shakoor did not in fact dispute that the CGT was payable but denied that a penalty was payable. Mr Shakoor argued that the penalty should be reduced to nil on the basis that he had not acted negligently. The Revenue alleged that, whilst Mr Shakoor had not acted fraudulently, he had acted negligently in failing to pay the CGT due. However, Mr Shakoor argued that he had relied upon the advice of his accountant and, consequently, any negligence was on the part of his accountant and not him.
Decision
The Tribunal held that Mr Shakoor should pay a penalty of 30% as an appropriate assessment of “relative and relevant culpability”.
The Tribunal concluded that the approach taken in AB v HMRC [2007] was the correct approach to follow. In that case, the Tribunal had commented, “We also accept that a taxpayer who takes proper and appropriate professional advice with a view to ensuring that his tax return is correct, and acts in accordance with that advice (if it is not obviously wrong), would not have engaged in negligent conduct”. In this instance, the Tribunal went on to conclude that “if the advice of a professional, in the sphere of tax matters usually an accountant, is negligently provided, that negligence is not to be imputed to the taxpayer”. However, notably the Tribunal suggested that this will only be a defence where the tax payer has no reason to believe that the advice is wrong, unreliable or it does not contain substantial caveats.
However, in this case, Mr Shakoor admitted that when his accountant had provided him with his tax return, he noticed that there was no reference to the disposal of a property (which gave rise to the CGT which forms the subject of this case). Accordingly, he questioned this with his accountant who told Mr Shakoor that the gain was exempt from CGT; however, it appears Mr Shakoor did not subsequently seek any further explanation. The Tribunal concluded that there must have been, at the very least, reasonable doubt that an exemption applied and it therefore defied belief that he did not seek any further explanation from his accountant. The Tribunal took the view that, ultimately, this was a case of “shutting one’s eyes to what either was or ought reasonably to have been seen as incorrect advice”
However, the Tribunal distinguished this case from the situation where a taxpayer fails to meet a deadline for filing a tax return or some other such ‘administrative’ task, due to the negligence of their accountant. In that situation, the Tribunal suggested that the accountant will simply be acting as the tax payer’s agent or functionary, and not as a professional adviser as such; accordingly, the accountant’s negligence is unlikely to be a defence for the tax payer. The Tribunal distinguished the two scenarios by suggesting that “where a professional adviser is not retained simply to act as a functionary, but is retained to give professional advice based upon the best of his skill and professional ability, he is not then a functionary or agent for his principal”.
Professional advice should always be sought where you require assistance in specific areas of law or insurance. Jelf Professions, its associated companies, staff and others do not accept any responsibility for any actions based on this blog.
