Inappropriate penalties

Incorrect return delivered fraudulently or negligently

The taxpayer claimed a capital loss in his tax return which he sought to offset against capital gains. The loss arose from participation in a marketed planning arrangement that was found not to work. The taxpayer accepted this and withdrew his loss claim. HMRC said he had submitted an incorrect return fraudulently or negligently and imposed penalties under TMA 1970 s 95.

The taxpayer appealed against the penalties.

The First-tier Tribunal found that the taxpayer had not acted fraudulently. The judge said the fact that he had claimed a loss when he knew that he had not made ‘an economic loss of that amount’ did not indicate fraud. The tax system is complex and there are instances when the calculation of a profit or loss for tax purposes is different from the economic one. The taxpayer’s state of mind was important – did he...