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Markel Tax

22 Jul 2020

A tale of deliberate penalties and fair outcomes

At first sight the recent case of Amara Akhtar (2020) UKFTT 00160 (TC) may not appear to be particularly significant but closer scrutiny reveals just how important it is to the future conduct of tax enquiries. Steve Price examines the details.


According to the case, Ms Akhtar is a domestic care worker providing care to clients in their own homes and also running errands for them. She uses her own car but does not receive any reimbursement of mileage costs.

Due to difficulties in reading and writing English she relied on one of her clients to prepare her tax return which she signed without checking.

Mileage costs

As Ms Akhtar did not keep mileage records an estimate was included in her return.

HMRC disputed the estimate because there were no supporting records but was given full access to the employer’s detailed records of the clients Ms Akhtar had visited on a daily basis.

HMRC carried out what appears to have been a limited review of only one week’s records, excluded mileage to and from the first and last visits of the day and extrapolated figures for a three year period. Assessments were then made on this basis. HMRC also imposed a ‘careless’ penalty which it chose not to suspend as it considered that there was no indication that Ms Akhtar would bring her affairs up to date.

The Tribunal recognised Ms Akhtar’s vulnerable position and took the unusual step of carrying out a much more detailed review of the employer’s records than that carried out by HMRC. In doing so it recognised that Ms Akhtar was indeed entitled to claim for journeys to and from her first and last visits of the day by virtue of ITEPA 2003 s 337. It also found no evidence to support HMRC’s views on its refusal to suspend the careless penalty and directed an appropriate suspension order.

While the outcome favoured the appellant it also ensured that she was assessed on a fair and reasonable basis, a duty which should have been discharged by HMRC in concluding its original enquiry.

Unfortunately, many advisers dealing with HMRC enquires will recognise this one-sided and adversarial approach, but it is perhaps surprising that HMRC’s litigation team allowed this aspect of the case to get this far when it clearly could and should have been resolved long before.  It is, however, heartening that the Tribunal still support the notion of fairness, in this case going the extra mile to get an equitable outcome. There have been a number of cases over the years where HMRC have not applied the requisite level of diligence and for want of a better expression, common sense, in arriving at the quantum of assessments and it can only be hoped that they can learn from this experience that it is their job to arrive at the right amount of tax due, not the biggest number they can generate.

PAYE tax deducted

HMRC had also found errors in the amount of PAYE tax deducted entered in the return. It claimed that this was an obvious error which Ms Akhtar should have noticed and as she was unable to provide ‘clear explanations’, a deliberate penalty was imposed.

The Tribunal disagreed citing the case of Auxilium Project Management Ltd (2016) UKFTT 249 (TC) that ‘a deliberate inaccuracy penalty occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document ….. It is a question of the knowledge and intention of the particular taxpayer at the time’.

The Tribunal carefully considered Ms Akhtar’s personal circumstances and formed the opinion that although she had not taken responsibility for her tax affairs and failed to take reasonable care in the preparation of her returns this did not support HMRC’s claim of deliberate behaviour.

In recent years HMRC has quite rightly followed the path of deliberate behaviour where a taxpayer has knowingly or intentionally submitted an incorrect return. However, this has subtly evolved into a belief that if there is an obvious error in a return, a taxpayer must have known about it and so a deliberate penalty can be sought.

The decision in this case clearly dismisses this notion reinforcing the requirement for objectivity; HMRC cannot just assume a case of deliberate behaviour even where there is a very obvious error in the return; instead the onus is very much on HMRC to properly establish the precise circumstances based on the taxpayer’s knowledge and intentions at the time, and judge the situation accordingly. This is an extremely important issue that should have a significant impact on future enquiry cases.

Markel Tax has been successfully dealing with all aspects of compliance work for almost 25 years, using its vast experience to achieve excellent outcomes for all types of client. For further help or advice please contact Steve Price on or call on 0333 920 5708.

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