Taxpayers responsible for wrong tax advice

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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HM Revenue & Customs (HMRC) is winning a war against tax avoidance after yet another scheme to shelter money has been lost in a landmark court case.

Two company directors were ruled as acting negligently when looking to save tax by wrapping property transaction in a package set up by Isle of Man tax planners Montpelier.

Bernard Litman and Ann Newall appealed to a First-tier tribunal against a tax demand of £118,000 plus penalties of 25% for Litman and 20% for Newall from HMRC.

Both had tried to save capital gains tax on the disposal of business property.

HMRC claimed the Montpelier broke tax rules and told the pair they should pay the capital gains tax. HMRC also wanted a 25% tax penalty from Litman and another of 20% from Newall.

The tribunal ruled in HMRC’s favour but did reduce the tax penalties for each of the directors to 10% of the tax owed.

They have already paid the capital gains tax liability plus interest.

The pair argued that because the tax shelter was a professional package, they just followed the advice they were given and did not check to see whether they had broken any rules.

The tribunal dismissed their argument and told them they should have checked that money was exchanged in the transaction and that they were ultimately responsible for the information in their tax returns.

The tribunal judgement said: “The failure to inquire into the basic commercial reality of the transactions entered into by these taxpayers is negligence for these purposes and that a reasonable taxpayer, including one prepared to enter into a packaged scheme like this, would have ensured that the commercial elements of the transaction, including the loan in particular, stood up to some commercial scrutiny and had been properly implemented.

“The taxpayers should not have claimed the capital losses on their tax returns without at least understanding that an actual transaction had been entered into, that some money had moved and that the transaction was not a sham.”

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