In John McFarlane v HMRC [2018] TC06512 the First Tier Tribunal (FTT) dismissed appeals by an unrepresented taxpayer; he did not discharge the burden of proof, had acted carelessly and his agent had acted deliberately.

Mr McFarlane, a self-employed film producer, was one of the 7,000 plus clients who had been represented by the media accountants Christopher Lunn & Company (CLAC) . CLAC were raided by HMRC and subject to a fraud investigation in 2010/11.

  • HMRC wrote to Mr McFarlane in 2011 requesting that he review his tax affairs for the period during which he had been represented by CLAC and requesting a disclosure if errors were found. It was around this time that Mr McFarlane appointed a new agent.
  • Over the next three years HMRC contacted the taxpayer and his agent on many occasions regarding his 2010/11 return about deductions for accountancy fees and mortgage interest claimed by CLAC. Three Schedule 36 notices were issued but they received only limited information. Flat rate and daily penalties were issued in respect of the notices.
  • Following queries about mortgage interest relief and capital gains tax on a property, the agent tried to amend the 2010/11 self-assessment return and to file a Private residence relief nomination under s222(5) TCGA. The amendment was not accepted as the enquiry was ongoing and the nomination was incorrectly addressed.
  • Self-employed accounts were received for 2010/11 in May 2013. Mortgage interest relief claims of over £11,000 in respect of increased borrowings could not be substantiated.
  • During 2014 the following were issued by HMRC:
    • Discovery Assessments  for 2005/06 to 2009/10 totalling £7,576.40
    • A Closure Notice under s28A TMA 1970 for 2010/2011 amending the submitted return in respect of income tax and capital gains tax totalling £52,937.
    • Penalty determinations under s95 TMA for 2005/06 to 2007/08, at 45% of the tax due.
    • Penalties for 2008/09 to 2009/10 under schedule 24 TMA at 30% of tax due.
    • The penalties totalled nearly £54,000.
  • The taxpayer appealed on the grounds that:
    • No discovery had been made
    • The expenses claimed were wholly and exclusively for his trade
    • The crown court had examined the method for calculating the expenses and CLAC had not been charged.
  • Not all of the decisions and assessments were correctly identified in the appeal documents; the tribunal agreed with HMRC to deem that Mr McFarlane had correctly made an appeal against all appealable decisions.
  • Mr McFarlane was unrepresented at the appeal; he was unable to attend due to ill health and his agent claimed to have the wrong date.

The FTT, in dismissing the appeals, found:

  • The crown court trial was not relevant and could not be reflected in the notices of appeals as it was not heard until after the appeals were made.
  • The discovery assessments were valid; the taxpayer had acted carelessly except regarding CGT where his actions were deliberate, his agent had acted deliberately and the extended time limits at s36 TMA applied. The burden of proof was on him to show the tax charged was incorrect and he produced no evidence. 
  • The amounts assessed by the closure notice were valid, the s222(5) nomination had not been validly made and the facts did not support that the property disposed of was his main residence for the relevant period. 
  • All penalties were upheld; they were validly made, special circumstances had been considered, the reductions applied were appropriate and HMRC were right not to consider suspension for the CGT penatlies as the taxpayer had acted deliberately.


Despite abatements by HMRC the total penalties equated to almost 90% of the tax due; much of this would have been in daily and flat rate penalties. Whether the taxpayer would have fared better had he been represented at the tribunal is unclear but he could have saved himself a great deal of stress and money had he tried harder to work with HMRC.


Useful guides on this topic

How to appeal a decision of HMRC
Key steps in appealing a decision of HMRC.

How to appeal a tax penalty
Essential reading in cases were there are penalties too

Discovery assessment and time limits
How far HMRC can go back, what conditions must be met for a valid discovery

Penalties: Error in a return or document
How work out penalties for different forms of inaccuracies

DOTAS: Disclosure of Tax Avoidance Schemes
Rules for declaring use of tax schemes

Penalties: deliberate behaviour

External link:

John McFarlane v HMRC [2018] TC06512


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