Penalty sought

I am dealing with an HMRC enquiry into a client where the department are seeking to disallow a relatively small amount of expenditure claimed as revenue on the grounds that it is capital.

My question does not arise from whether or not the expenses are deductible as the House of Lords have come to different conclusions on similar facts in a number of cases.

My query is whether it is appropriate for HMRC to seek a penalty under these circumstances as they have indicated that they wish to do on the grounds that the taxpayer was negligent in preparing their tax return by not disallowing the aforementioned expenditure.

Have Taxation readers had any experience of HMRC’s attitude to seeking penalties under circumstances where it is well-known that it is difficult to decide whether an expense is allowable and has there been a change in HMRC’s attitude...