Ignorance of the law is not normally a valid excuse for a tax adviser to make when things go wrong. However, when HMRC's website and helpline both give the same misleading advice, it may be quite a different matter.

Many advisers struggle to keep up with the never ending changes made to tax law. HMRC has made various changes to deadlines for filing under self assement in recent years under the Carter Programme. It has published guidance on its website to explain the different deadlines for paper and online filing as they have moved. Different rules apply to partnerships compared to invidividuals.

A partnership relied on the advice of its accountant, who in turn relied on the advice given from HMRC's website and helpline. This lead him to believe that no penalty would be charged on paper partnership returns filed late even where the tax was paid by the due date. It transpired that HMRC's advice was misleading.

As a result a partnership was fined for failing to file its return on time.
HMRC tried to argue that:

  • The taxpayer was not entitled to rely on a third party.
  • The excuse did not exist throughout the period of default.
  • Ignorance of the law is no excuse.

The First Tier Tribunal dismissed the later as follows: "Where it is HMRC who has mis-stated the law, it seems to me that this is quite a different matter. HMRC has responsibility for gathering the correct amount of tax and it must be reasonable for a taxpayer to rely on HMRC’s guidance as a correct statement of the law. Further, it is actually HMRC who impose the penalty: HMRC must therefore ensure that they do not mislead taxpayers into mistaken actions which incur a penalty."

It found that in these circumstances the agents's failure could be treated as the taxpayer's failure. This meant that there was no issue about reliance on a third party (a defence that normally applies when tax affairs are too complex for a non-specialist to comprehend).

As the agent had not been aware that there was a problem until the penalty was raised the excuse did exist throughout the period of default.

Editorial note: Millionaire businessman Robert Gaines-Cooper was not so fortunate with this line of defence: he recently lost his appeal for judicial review when he relied on HMRC's booklet IR20 in respect of determining his residency in the UK for tax purposes.

The case: B & J Shopfitting Services TC/2009/10653

This case has been added to our Tax penalties: grounds for appeal resource for subscribers.