Taxpayers can avoid HMRC penalties if they relied on negligent advice from their accountants according to the Tax Tribunal.

The defence cannot be used, however, where an accountant was simply used in an administrative capacity to file tax returns, or if the advice was so obviously wrong that the client should have been aware of the mistake.In the case of Waseem Shakoor v HMRC, Mr Shakoor appealed against an assessment by HMRC for unpaid capital gains tax plus a 70{0a6a65c996ed4169444354e707b897cdb00dbefc1d0429e8febb9bf11027ba53} penalty, claiming he had acted on advice from his accountant.  The case centred on two flats which Mr Shakkor had bought and sold in a single tax year realising a profit.  He had not occupied either property and had failed to declare the gain on his tax return.  His argument to the tribunal was that the penalty should be reduced to nil as he had relied on advice from his accountant that the disposals were not taxable.

Mr Shakoor’s accountant accepted that he had advised his client on several occasions that the disposal of the properties had not triggered a taxable gain.  He claimed to have relied on extra-statutory concessions and on the fact that Mr Shakoor had disposed of his principal private residence.

While the Tribunal accepted that the accountant’s advice was wrong it also concluded that Mr Shakoor was responsible in part as he knew he had not occupied either property and should have realised that the advice was wrong.  It concluded that he should still pay a penalty, but that it should be reduced to 30{0a6a65c996ed4169444354e707b897cdb00dbefc1d0429e8febb9bf11027ba53} to take into account his adviser’s negligence.

“The comfort accountants can take from the Shakoor case is that it could provide a defence in negligence cases if their mistake was so obvious that the client should have spotted it,” said James Burgoyne, Director, Brunel Professional Risks.  “This case may also lead to pressure on accountants to admit negligence in order to mitigate tax penalties, and perhaps even tempt them to do so in relation to key clients. Admissions of liability can negate PI cover however, and policy conditions relating to admissions of liability must be remembered.

The Shakoor case has been reported by solicitors DWF Fishburns and Pinsent Masons.