Taxpayer Appeal Allowed – HMRC’s Approach to Penalties Criticised

In a recent dispute between H&H Contract Scaffolding Limited (H&H) and HM Revenue & Customs (HMRC) [2024] UKFTT 00151 (TC), concerning a research and development (R&D) tax relief claim, significant insights were revealed into HMRC‘s approach to penalties. The case sheds light on the complexities surrounding penalties for alleged “careless behaviour” and raises questions about HMRC’s default stance in such matters.

H&H Contract Scaffolding Limited (H&H) v The Commissioners for HM Revenue & Customs (HMRC)

H&H engaged advisers to prepare an R&D tax relief claim, which HMRC disputed. Ultimately, H&H accepted the claim as invalid, leading to a dispute over a penalty imposed by HMRC for alleged careless behaviour. The crux of the issue lay in HMRC’s contention that H&H had acted carelessly by failing to qualify for the R&D tax relief. The tribunal sought to decide whether it was appropriate to impose a penalty of £6,632.01 for ‘careless behaviour’.

Tribunal’s Decision

While the tribunal did not delve into the details of the R&D claim, it focused on whether the penalty was justified. The judge criticised HMRC’s assertion that the mere existence of an inaccuracy indicated careless behaviour. Instead, the tribunal sought evidence to ascertain whether H&H had taken reasonable care in engaging professional advice. The judge ruled in favour of H&H, noting that the taxpayer had acted prudently by relying on competent advisers experienced in submitting R&D tax relief claims.

Download the Judgment Here

HMRC’s Blanket Approach

This case reflects HMRC’s tendency to adopt a blanket approach to penalties, particularly evident in its handling of R&D enquiries. The Chartered Institute of Taxation highlighted HMRC’s aggressive stance in an open letter, prompting HMRC to defend its position. However, cases like H&H’s suggest discrepancies between HMRC’s rhetoric and its actual practices.

Impact on Taxpayers

HMRC’s aggressive pursuit of penalties can burden taxpayers with significant time and financial costs, often leading them to accept penalties to conclude matters swiftly. This approach can adversely affect legitimate businesses, impacting their operations and viability. Moreover, HMRC’s aggressive tactics contribute to additional uncertainty and costs for clients involved in the dispute resolution process.

HMRC’s Response and Future Steps

While HMRC acknowledges shortcomings in penalty assessments, its standard approach persists. Further training for staff is underway, but questions linger over whether the default position stems from misunderstanding, overzealousness, or revenue-raising motives.

Expert HMRC Tax Disputes Lawyers

At LEXLAW, we specialise in assisting clients facing disputes with HMRC. Our experienced team navigates complex tax matters, offering expert guidance to ensure fair treatment and favourable outcomes for our clients. Whether contesting penalties or defending against aggressive tax assessments, we provide strategic advocacy and tailored solutions to protect our clients’ interests.

By addressing the nuances of each case and leveraging our in-depth understanding of tax laws and regulations, we strive to achieve optimal results for our clients, mitigating the impact of HMRC’s aggressive tactics and safeguarding their financial well-being.

In conclusion, the H&H case underscores the importance of vigilance and proactive representation in disputes with HMRC. With our firm’s expertise and dedication, clients can trust us to advocate effectively on their behalf, delivering peace of mind and tangible results in challenging tax disputes.

Expert London Tax Lawyers

If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy.

We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [email protected].