SDLTM86415 - Compliance: Penalties

Culpability: General: Neglect, negligence and negligent conduct

Neglect means negligence or a failure to give any notice, make any return or to produce or furnish any document or other information required by or under the Taxes Acts.

Negligence has been defined as '... the omission to do something which a prudent and reasonable man would do.' (Baron Alderson in Blyth v Birmingham Waterworks Co, 1856, 11 Ex 781, p784, which was concerned with the law of tort).

We can assume that a reasonable person would, amongst other things

• comply with the requirements of the law by, for example, notifying his chargeability
• make, promptly, a complete and correct return of his land transactions when required to do so under statutory authority
• keep such records as are necessary to enable him to make accurate returns
• read carefully the notes supplied with the return form, so far as they affect his own circumstances
• seek professional help with matters which he is unable to cope with satisfactorily himself

Default of the purchaser

It is particularly important in enquiries to show that the loss of tax is attributable to the purchaser's fraudulent or negligent conduct. For penalties, there is no extension of the definition to cover the purchaser ‘ or a person acting on his behalf’.

If the return is completed incorrectly due solely to the fault of an agent and the purchaser is completely innocent, that is, they could not reasonably be expected to know of, or to have informed themselves of the error when they checked and signed the return, then they will not be liable to penalties.

This is obviously not applicable where the purchaser later discovers the error and fails to advise HM Revenue & Customs about it, see SDLTM86210.

Fact finding

There is an obvious need to establish the facts because the onus is on HM Revenue & Customs to demonstrate negligence if we seek to impose a penalty.

The compliance caseworker should consider culpability as soon as it becomes apparent that there may have been an understatement of tax.

Whilst enquiring into the facts that gave rise to the loss of tax you should ask as appropriate

• what went wrong
• whose fault was it
• what could the purchaser have done to prevent the error
• was the purchaser careless?

You need to consider not only what the purchaser knew at the time the incorrect return was made. For negligence it is a question of what a prudent and reasonable person would have taken steps to find out.

The purchaser has a personal duty to ensure that the return is correct. Although an agent may have prepared the return this doesn’t diminish that personal responsibility.

Because the test of culpability is carelessness on the part of the purchaser you need to ascertain what reasonable care the purchaser has failed to exercise. For example, before signing or authorising the return, exercising reasonable care might include taking the trouble to

• discuss the figures and details inserted by the agent
• find out or try to understand the basis, method and origin of the figures and details inserted by the agent

In other words, although employing a professional, did the purchaser take all reasonable care to ensure that the return was right?

Complex technical matters

A purchaser who approaches professionals on whose advice he can reasonably expect to rely, is unlikely to be found negligent if he gives them the full facts and then precisely follows their advice. If the legal context of the transaction is complex, in many cases it will be unrealistic to expect the purchaser to have sufficient understanding of the issues to have prevented the error in his return.

If the adjustment arises in an area where the law was genuinely unclear it might have been tenable when making a return to take a more advantageous view of the particular legislation than that held by HM Revenue & Customs.

If subsequently the purchaser accepts HM Revenue & Customs interpretation of the law it would not necessarily make that purchaser guilty of negligence.