In Bernard Litman Ann Newall v HMRC, two taxpayers incurred penalties for negligence after claiming tax relief on a tax avoidance scheme which lacked commercial reality.

Tax scheme promoters, Montpellier sold a packaged tax avoidance scheme to a couple in order to create capital losses for tax.

The couple claimed that they were not negligent in claiming the loss as they had done all that was required by HMRC:

  1. They disclosed a DOTAS number on their returns.
  2. They took advice from their accountants in making the disclosure on their tax returns. 
  3. They relied on the advice of their tax advisers in relation to the complex tax treatment of capital redemption bonds.

The First Tier Tax Tribunal decided that:


The ruling represents an interesting development in tax penalties for negligence and it will potentially affect many taxpayers who have entered into tax schemes without bothering to ask about or even understand the different steps of the scheme. We have noticed over the years that many taxpayers using contrived schemes are not remotely interested in commercial reality! Penalties in this case were only 10% but this was in addition to the tax involved and so another success for HMRC.


Bernard Peter Litman Ann Newall v HMRC [2013] TC03229

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