SDLTM86480 - Compliance: Penalties

Culpability: Defences and responses: Innocent error, explanations

There is no provision in Finance Act 2003, whereby a person can escape the consequences of fraud or negligence in relation to a land transaction return that has been submitted and found to be incorrect.

Although the onus is always on HM Revenue & Customs to demonstrate that there has been fraud or negligence, the compliance caseworker will normally show that there has been an error or omission and that there is no known acceptable explanation.

The onus will then be on the purchaser to establish that the error was entirely innocent of fraud and negligence, which is not an easy task.

Typical explanations offered by the purchaser are that they

• made an isolated arithmetical or transcription error
• had mislaid relevant records or had miscalculated the amount to be returned as a result of a bona fide mistake
• had completely forgotten about the transaction
• were misinformed by someone thought to be reliable regarding the amount to be returned
• had given all the information to their agent, who had let them down

Any claim of innocent error should be considered very carefully. It is important to establish all the facts and a compliance caseworker should normally meet with the purchaser and their agent. A purchaser can have made an innocent error, even where it is discovered in the first instance by HM Revenue & Customs. Conversely, the fact that an error may in the first instance be disclosed by the purchaser does not mean that it is innocent.

Where it is accepted that an error in a return or supporting document was wholly innocent of fraud or negligence, the purchaser has not committed an offence. If, however, the purchaser, or the personal representatives of a deceased purchaser, become aware of the error, they must remedy it without unreasonable delay or the original submission will be treated as negligent.

Although FA03/SCH10/PARA8 refers to a purchaser delivering or making the land transaction return, if the purchaser is a company, a company can only perform this action through its officers, employees or agents. It is therefore necessary to consider the question of the extent to which their negligence can be said to have been on behalf of the company in order to establish whether the company may be culpable.

A company is responsible for the actions of its officers and employees, if they are acting in the course of their duties and, prima facie, an incorrect land transaction return is the company's responsibility.

The essential test is did the company do through its officers etc what a prudent and reasonable man would have done or did it fall short of this?

The actions of the officers or employees are actions of the company and if their actions amount to negligence in the delivery of an incorrect return the company will be liable.

Again it is necessary that the relevant facts be established for example, if the error was that of a junior employee was there also neglect at a more senior level in setting or checking the internal systems in place?

SDLTM30200 gives further details of the responsibilities for notification by a company.