In Mr Douglas Shanks v HMRC [2019] TC07118 the FTT cancelled penalties for inaccuracies but disallowed partnership losses; they were not substantiated and from a different trade to the profits against which they were being offset.

In the case of an LLP, the LLP carries on a trade and:

Trading losses carried forward can only be offset against the profits of the same trade.

Mr Shanks was an accountant operating first through his own LLP, Douglas Shanks LLP (“DS LLP”) and then with two other accountancy LLP’s. He had been suffering ill-health over a number of years.

The FTT dismissed the appeals against all of the closure notices.

The judge allowed the appeal against the penalties in full; there was no deliberate inaccuracy or failure to take reasonable care; when Mr Shanks submitted his returns he took a view on how his income should be reported which he subjectively believed was accurate; that view was not spurious or fanciful; and he explained to HMRC (via the white space) exactly what he had done and why. 

The judge did go on to say that no reduction for special circumstances would have been due as Mr Shanks, although operating under personal difficulties, was able to carry on a demanding profession and so was in the same (if not better) position as most taxpayers to file accurate self-assessment tax returns.

Links to our guides:

Penalties: Errors in Returns and Documents (subscriber version)

How to appeal a tax penalty (subscriber version)

Losses, trade losses and sideways relief

Partnerships (unlimited or limited?) 

External link:

Mr Douglas Shanks v HMRC [2019] TC07118