Taxpayer careless despite legal advice

In Mas Fabrics Hong Kong Limited v HMRC [2021] TC08097, the First Tier Tribunal (FTT) dismissed an appeal against penalties following the removal of an incorrect relief claim. The taxpayer had not taken reasonable care despite obtaining professional advice.

• Mas Fabrics Hong Kong Limited (Mas) purchased a residential property for £3.55m in December 2017.
• Stamp Duty Land Tax (SDLT) returns were filed claiming relief from the 15% rate of SDLT on the basis the properties would be used by employees that were not otherwise connected with the company.
• HMRC wrote to the lawyer who prepared the returns requesting information about the transaction.
• Following correspondence with HMRC, it became clear that the relief claimed was not available.
• Mas agreed to pay an additional SDLT of £284k.
• HMRC raised a Tax-geared penalty of £55k (19.5%) as the SDLT return had been completed carelessly.
• Mas appealed the penalty on the basis that they had taken Reasonable care as they had relied on lawyers to complete the SDLT Return correctly.
• A Statutory review was undertaken which upheld the tax officers' decision.
• An Appeal against the penalties was lodged with the FTT.

The FTT dismissed the appeal finding that:

• The onus of proof rested with HMRC to show that the behaviour of Mas which led to the inaccuracy was careless.
• A multi-national company should not have to carry out research into local tax provisions after having appointed a reputable firm of solicitors.
• The lawyers did not produce evidence of the information on which the SDLT return was based and there was no explanation on their client file to explain why the relief was claimed.
• The lawyers would have needed to ask questions about the occupation of the property and Mas would have needed to provide that information in order to justify the claim for relief.
• It was probable that Mas always intended that the directors and senior management would occupy the property at one stage.
• If Mas had ‘opted’ to pay the lower SDLT rates then it should have asked for an explanation of the relief it relied on and its conditions. If Mas did not ask what the requirements for the relief were then it was careless.
• The lawyers should have advised Mas of the requirements of the relief.
• Mas was careless in engaging with the lawyers in claiming the relief on the SDLT return.

Useful guides on this topic

SDLT: Residential property higher rates
What Stamp Duty Land Tax (SDLT) rate applies for the purchase of a second home? What is the SDLT higher rate? Are there any reliefs from the SDLT higher rate?

Client guide: Reasonable care and tax penalties
What triggers a tax penalty? What standard of care is expected from a taxpayer? What is reasonable care? When is an error careless?

Penalties: Errors in Returns and Documents (freeview)
What penalties apply for Errors in returns and documents? How are they calculated? When can they be reduced or suspended?

Penalties: Errors in Returns and Documents (subscriber)
What penalties apply if you make an error or mistake? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?

Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

How to appeal a tax penalty (freeview)
How to appeal a tax penalty. What are your rights of appeal if HM Revenue & Customs (HMRC) have assessed you for a tax penalty?

How to appeal a tax penalty (subscriber)
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?

External links

Mas Fabrics Hong Kong Limited v HMRC [2021] TC08097