Penalties

FTT finds that a company was careless when entering into a tax scheme

The First-tier Tribunal (FTT) has found that a company’s careless behaviour resulted in a loss of tax and the filing of inaccurate tax returns.

A company that was run by a sole shareholder entered into a tax scheme that did not provide the anticipated tax savings. The aim of the scheme was to provide tax-free amounts to employees via the use of an offshore employee benefit trust. HMRC found that the returns of the company were incorrect and issued determinations and penalties. This was appealed on the basis that the relevant loss of tax and the inaccuracies in the return were not brought about carelessly.

The shareholder stated they did not understand the tax mechanisms involved but trusted that the person introducing them to the scheme did. It was found that the company did not seek tax advice regarding the scheme.

The FTT ruled that a reasonable individual would have sought advice into this type of scheme and a competent tax adviser would have identified flaws in the structure and therefore the behaviour was careless. The FTT also ruled that the loss of tax was brought about by the company’s failure to take reasonable care and that the errors in the company returns were caused by the company’s failure to seek tax advice. 

Janet Bray Limited v HMRC [2024] UKFTT 787

From Tax Update September 2024, published by Evelyn Partners LLP