It, therefore, seems obvious that deliberate behaviour is “conduct substantially more blameworthy” than careless behaviour. However, it took the Supreme Court to make that decision in HMRC v Tooth  1 WLR 2811 when considering whether there was a deliberate inaccuracy in a document given to HMRC. The Supreme Court had no hesitation in finding that for an inaccuracy to be deliberate there must be an “intention to mislead the Revenue” (or possibly recklessness as to whether the Revenue would be misled).
Although Tooth was specifically concerned with deliberate inaccuracies in documents, it confirmed (given that confirmation was apparently needed) the serious and dishonest nature of “deliberate” behaviour. Tooth made it clear that HMRC should carefully consider whether the requisite test is met before asserting that a taxpayer has acted deliberately in bringing about a loss of tax. There are however signs that, despite Tooth, HMRC is persisting in asserting deliberate conduct more frequently than has previously been the case.
In the recent case of Dougan v HMRC  UKFTT 00140 (TC), HMRC maintained that a taxpayer had acted deliberately in failing to file returns. Admittedly, the taxpayer had a chequered filing history, with a history of filing late then periodically catching up on his filings. Nonetheless, in its submissions, rather than refer to the Supreme Court case of Tooth, HMRC relied on the First-tier Tribunal (FTT) decision Clynes v HMRC  STI 1678, continuing to emphasise the point that Mr Dougan had “made a conscious decision not to complete his returns” rather than asking whether this was prompted by an intention to bring about a loss of tax (the evidence was that Mr Dougan did not think that he was ultimately failing to pay the tax due).
The decision contained a summary of the law that was somewhat unclear, even appearing to suggest that the Court of Appeal decision on deliberate behaviour in Tooth was upheld in the Supreme Court (whereas, actually, the Supreme Court departed from the reasoning of the Court of Appeal on the question of deliberateness). Ultimately, however, the correct test was applied and it was found that there was no intention by Mr Dougan to bring about a loss of tax.
Clynes was again unsuccessfully relied upon post-Tooth by HMRC in JT Quinns Limited, Queen-Rose Green v HMRC  UKFTT 0454 (TC), where HMRC argued that a taxpayer had acted deliberately when approving a return completed by an accountant which had errors she would have been aware of or chose not to identify. The FTT found that the taxpayer had relied upon her accountant and was firmly of the view that the returns were correct.
There have also been recent cases where HMRC have sought to attribute an agent’s deliberate/fraudulent behaviour to the taxpayer. Whilst this can be arguable on the rules in certain circumstances, given that any tax will be paid by the individual, who is also a victim and will realistically struggle to recover anything from the fraudulent agent, it is questionable when a taxpayer should properly be treated as responsible for the fraud of his agent. The FTT has tended to agree with this concern.
McCumiskey v HMRC  UKFTT 128 (TC) and Huntly v HMRC  UKFTT 135 (TC) are two recent cases which considered fraudulent activity carried out by Capital Allowance Consultants Limited (CACL), which resulted in false claims for relief being made (of which the taxpayers had no knowledge) and sums being paid to bank accounts under CACL’s control. The FTT noted that the fraud was facilitated by HMRC’s policy of paying immediately and checking later.
In McCumiskey, the FTT was able to focus strictly on the law of agency, and avoid the issue of whether an attribution would otherwise be appropriate. CACL was specified on the relevant form as Mr McCumiskey’s agent, but was not technically the same company Mr McCumiskey had actually appointed as agent. HMRC maintained that Mr McCumiskey was effectively engaging Mr Brown and Mr Brown was “involved” with CACL who filed the return. The FTT had no trouble in finding that CACL had no authority to act on Mr McCumiskey’s behalf and the assessments could not be upheld.
In Huntly, an understandably distressed Mr Huntly called HMRC when he received an assessment, and said that there must have been a mistake. It was found as a fact that the Officer implied there was no legitimate ground of appeal and Mr Huntly was directed to the guidance on time to pay arrangements. As such, Mr Huntly’s appeal was made 20 months late, after he was made aware of the possibility of an appeal from others who had been defrauded by CACL. Despite the extenuating circumstances, HMRC refused to allow Mr Huntly to make a late appeal. The FTT had little difficulty in deciding that it was in the interests of justice that permission be given (in accordance with the Martland principles).
The case of Dougan is different to those of McCumiskey and Huntly. Mr Dougan was undoubtedly cavalier with his filings. However, all cases show a commitment by HMRC to pursuing taxpayers over deliberate conduct that has not been dimmed by the decision in Tooth and, indeed, does not always reflect on the decision in Tooth. It is, of course, important that HMRC have the powers to assess tax where there has been fraud by the taxpayer. Given the seriousness of the charge, however, it is also important that those powers are exercised in a considered manner.
For more on the Tooth decision see our earlier article.