A leading barrister who has been involved in a long running dispute with HMRC over more than £1m of penalties imposed for late self assessment returns has won his case in the Court of Appeal on the grounds that there was no sign of ‘deliberate concealment’
Romie Tager, QC, was the executor for the estate of his late father, Osias Tager. His dispute with HMR centred on penalties he was given relating to his failure to comply with three information notices, two relating to income tax and one in connection with inheritance tax (IHT).
Tager had already taken his case to both a First Tier Tribunal and an Upper Tribunal, which the Court of Appeal said had heard evidence that he had ‘failed over a period of several years to comply with many of his most basic obligations as a taxpayer, not only in relation to his personal tax affairs, but also in relation to the estate of his late father’.
There was common agreement that Tager routinely filed his tax returns late, but then made substantial payments on account which were intended to be (and in fact usually were) amply sufficient to cover his outstanding liabilities.
The earlier tribunals looked at the issue of this delay in providing information and, in particular, at Tager’s failure to respond to the HMRC’s information notices. As a result the Upper Tribunal exercised its right to impose a penalty under FA 2009, Sch 36, para 50.
This was the first occasion on which the tribunal had used its powers under para 50, and its calculation of the tax-related penalty was based on consideration of likely amount of underpaid tax. The Court of Appeal case considered whether this approach was the correct one. [Romie Tager and the personal representatives of the estate of Osias Tager and the Commissioners for Her Majesty’s Revenue and Customs,  EWCA Civ 1727].
At the Upper Tribunal, HMRC had argued that ‘there is a proper comparison to be drawn between paragraph 50 penalties and those imposed for deliberate concealment since the mischief targeted by them is materially the same, that is the intentional or, at least, prolonged withholding from HMRC of the information they need in order to assess the correct amount of tax.’
The judge agreed with this and imposed a penalty based upon 100% of HMRC’s current opinion of the outstanding liabilities to income tax and IHT; a total of £1,246,020 which was later reduced to £1,075,210.
Tager then went on to provide sufficient information to enable HMRC to agree that the income tax liability was £1,250 and the IHT due was £195,471.
The Court of Appeal found that the obligation on the Upper Tribunal is only to ‘have regard to’ the amount of tax shown to be at risk as a result of the failure to comply with the notice.
Its judgement stated that ‘the penalty is not intended to be a proxy for recovery of the unpaid tax, and Parliament has deliberately decided against providing for a fixed or mechanical relationship between the amount of the tax unpaid and the amount of the penalty.’
The judges were also critical of what they described as HMRC’s ‘speculative’ approach to assessing the value of Tager’s shares and property inherited from his father, on which the Upper Tribunal based its penalty.
Secondly, the Court of Appeal said that ‘the concept of "deliberate concealment" clearly denotes a course of conduct which will usually, if not invariably, be dishonest.’ This would require the individual to have deliberately withheld information and made arrangements to conceal the fact that the information had been withheld.
However, the court pointed out that it had never been part of HMRC's case that Tager was guilty of conduct of that nature.
The judgement stated: ‘Many disobliging epithets can be used to characterise Mr Tager's deplorable conduct in this case, and a selection of them may be found in the three decisions as well as in this judgment; but they should not be permitted to blur the important distinction between conduct which is dishonest (or akin to dishonesty) on the one hand, and conduct which is grossly, or even recklessly, negligent, on the other hand. Mr Tager was assuredly guilty of conduct of the latter type, but not the former.’
The court concluded that the correct approach was to avoid drawing comparisons with other penalty regimes and to substitute a figure which ‘yields a result which is proportionate to the scale and nature of the taxpayer's default’. It thus imposed round sum amounts of £20,000 for failure to comply with the income tax notices, and £200,000 for the failures to comply with the IHT notice.
Anton Lane, Croner-i tax writer, said: ‘This was the first hearing in relation to tax related penalties for a failure to provide information and this case is a helpful insight to how those penalties apply.’
Report by Pat Sweet