Can't only rely on agent: taxpayer must check tax returns

In Sunil Joseph v HMRC [2023] TC08895, the First Tier Tribunal (FTT) found that an employee, whose agent had claimed around £27,500 of expenses annually without factual basis, had not taken reasonable care. The inaccuracy penalties charged by HMRC were upheld.  

• Mr Joseph, an employee working in alcohol services, suffered Income Tax and National Insurance deductions at source, levied by his employer.
• Having learned from a trade union about an ‘entitlement’ to claim expenses, he approached a tax agent who claimed to have previously worked for HMRC.
• The agent was provided with P60s, and subsequently prepared and submitted self-assessment tax returns for Mr Joseph, claiming Travel, Subsistence and professional fees expenses for the tax years 2013-14 to 2017-18.
  • For four of the tax years, Mr Joseph’s returns recorded that he was self-employed and that a loss arose in each year.
  • This Trading loss was set off sideways against his employment income.
• The claims made resulted in tax repayments totalling £22,750, with the agent taking a 10% fee.
• HMRC raised Discovery assessments to recover the Income Tax repayments and charged Inaccuracy penalties of £3,413.
  • The penalties were charged on the basis of carelessness with prompted disclosure.
  • The maximum possible penalty reduction was given for 'telling, helping and giving', resulting in a penalty of 15% of potential lost revenue being charged.
• After a HMRC review, Mr Joseph Appealed to the First Tier Tribunal (FTT) against the inaccuracy penalties.
  • The discovery assessments were not disputed or appealed.

The FTT found that:

• The conditions for suspension of the penalties were not met.
  • Mr Joseph was not under a statutory obligation to make future tax returns.
• Mr Joseph had not taken Reasonable care, and was therefore careless.
  • He did not carry out any checks on the Agent’s credentials to confirm their credibility and reliability.
  • He failed to check what had been included in the returns submitted on his behalf and did not question the basis for claiming around £27,500 of unsupported expenses per year.
  • The reasonable care required to check the accuracy of Mr Joseph’s returns was at a basic and factual level. It did not require expertise, or specialist knowledge in tax.
  • Mr Joseph could not Rely on his agent to absolve him of his personal responsibility to check that the returns submitted on his behalf were accurate.

The appeal was dismissed.

Useful guides on this topic

Travel (summary for employees)
What expenses can your employer reimburse? How might travel expenses affect Income Tax and National Insurance Contributions? What journeys are allowable for tax relief?

Subsistence (employees)
Can employees claim tax relief for subsistence? How do you make a claim?

Annual expenses for employees: How to claim
The ways in which employees can claim tax relief for expenses changed on 7 May 2022. This guide explains how employees can claim tax relief for the employment expenses they incur.

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

Reasonable care: How do you pick a tax agent?
Tax penalties are charged according to a tariff but this is modified to take into account the taxpayer’s behaviour. When it is agreed that the taxpayer has taken 'reasonable care', no penalty will be charged. This is a brief summary to consider if you are picking a tax agent.

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 (subscriber version)
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?

Grounds for Appeal: Reliance on an adviser or third party
When can a taxpayer appeal a penalty for late filing, late payment or for error or mistake? What are the grounds on which they can appeal?

Losses, trade losses and sideways relief
How can trade losses be utilised? What are the restrictions?

External link

Sunil Joseph v HMRC [2023] TC08895