In Dr Marie Hallen & Dr Anette Persson v HMRC [2020] TC7775, the First Tier Tribunal (FTT) upheld penalties for inaccuracies in tax returns relating to a tax avoidance scheme. The taxpayers knew their returns were wrong, their behaviour was deliberate.

Under schedule 24 Finance Act 2007 a tax-geared penalty can apply when there is a potential loss of tax if:

  • A taxpayer makes a careless error or mistake in a tax return or document.
  • A third party supplies false information or deliberately withholds information in connection with another person’s return or document.

The rate of penalty charged depends on the behaviour of the taxpayer and whether it is deliberate.

Drs Hallen and Persson were dentists working through a company of which they were directors, NHP.

  • NHP paid them gross for their work and they declared this as self-employed income.
  • They entered into a tax planning scheme involving an offshore remuneration trust and personal management company in order to avoid income tax.
  • They claimed contributions to the remuneration trust as expenses against their self-employed income over a number of tax years from 2013 onwards. In each case, this reduced their taxable income to below the personal allowance limit.
    • No such payments were ever actually made to the trust by either taxpayer.
  • HMRC wrote to both taxpayers inviting them to make disclosures under the Contractual Disclosure Facility and, when they did not, opened COP9 fraud investigations.
    • During the time that the investigation was ongoing, both taxpayers made further expense claims for unpaid contributions to the trust.
  • HMRC concluded the expenses were not allowable offering the taxpayers the opportunity to enter into a contract settlement. They did not so HMRC issued discovery assessments for each relevant year.
  • Penalties were issued, at 50.75% of the tax due on the grounds on deliberate behaviour.
  • The taxpayers did not appeal the assessments. They appealed the penalties saying they had taken reasonable care. They sought to put the responsibility for the inaccuracies in their returns onto their former adviser who had introduced them to the scheme.

The FTT found that the returns filed by Dr Persson and Dr Hallen were inaccurate as the expenses claimed were never incurred, and that both taxpayers were aware of this when the returns were filed by their agent. Their behaviour was deliberate and the penalties stood as raised with no reductions.

  • The penalties had been validly raised within Paragraph 1 of Schedule 24 FA 2007. Documents had been filed (tax returns) which were inaccurate and those inaccuracies lead to a loss of tax.
  • The level of expenses claimed were so high that they could not have been overlooked when the taxpayers reviewed their tax returns meaning their behaviour was not merely careless as their new adviser suggested.
  • The taxpayers had originally refused to engage with HMRCs investigation, there were differing accounts of events, and relatively limited documents and information provided to the court.

The new advisers for Drs Hallen and Persson tried to introduce several grounds of appeal about the validity of the discovery assessments. The judge could not consider these as the assessments themselves had not been appealed; only matters pertinent to the penalties raised could be dealt with. For the same reason, the Tribunal could not make any comment or judgment about whether the tax avoidance scheme entered into here worked.


Penalties: Errors in Returns and Documents (subscriber version)
What penalties apply if you make an error or mistake? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?

Contractual disclosure facility CDF
HMRC has offered a contractual disclosure facility CDF since 31 January 2012. If HMRC writes to an individual about a suspected tax fraud they will be offered the CDF.

Client guide to 'Reasonable care and tax penalties'
A single tax penalty regime has applied across the main taxes from 1 April 2009. This is a guide to print out and discuss with clients.

External link

Dr Marie Hallen & Dr Anette Persson v HMRC [2020] TC7775