Taxpayer Pays Price for Failing to Comply With HMRC Information Requests

Those who fail to promptly and accurately answer requests from HM Revenue and Customs (HMRC) for information about their tax affairs are at risk of penal sanctions. The Court of Appeal has, however, ruled in a guideline case that financial penalties totalling more than £1 million imposed on a professional man were excessive.

Tax formThe man had, over a period of several years, failed to comply with many of his most basic obligations as a taxpayer, not only in relation to his own Income Tax affairs, but also in respect of Inheritance Tax liabilities arising from the death of his father. After he failed to comply with a number of requests for information, HMRC lost patience and took him before the Upper Tribunal (UT). Penalties totalling £1,075,210 were imposed under Section 113(1) of the Finance Act 2008.

In ruling on the man’s challenge to the amount of the penalties, the Court noted that this was the first case in which HMRC had invoked its power to seek such penal sanctions from the UT. The use of that power was only appropriate in serious cases where the imposition of more modest penalties had failed to secure compliance. HMRC was also required to hold a reasonable belief that, due to the failure to provide requested information, significantly less tax had been paid than would otherwise have been the case.

In upholding the man’s appeal, the Court found that the UT had erred in principle in setting the penalty at 100 per cent of the tax that HMRC estimated should have been paid. The figure should have been discounted to take account of the manifold and acknowledged uncertainties to which that estimate was subject. The amount of unpaid tax had now been agreed at a much lower figure than the estimate. In reducing the overall penalty to £220,000, the Court also had firmly in mind that the man had not been accused or found guilty of dishonesty.