What is deliberate behaviour in terms of tax penalties?
January 3, 2022
Jesmin Rahman
5 mins
No items found.
No items found.
No items found.
No items found.

I found the tax case Neil Anthony V HMRC TC07048 to be a good synopsis for the definition of deliberate behaviour in relation to inaccurate tax penalties and personal liability notices. In this case HMRC issued personal liability notices without establishing deliberate behaviour in the name of two directors of Spectrum.


The company Spectrum had been making payments to various companies without deducting CIS tax. The directors and the agents openly stated it was their understanding that CIS deductions did not apply here as the payments were being made to the payroll companies. There was no resistance or attempt to conceal this fact at anytime. In fact, nil returns were being made to HMRC during this time, which the tribunal acknowledged. HMRC withdrew the gross payment status. This lead to disastrous consequences for the company as it effected the cash flow and eventually led to its administration. HMRC issued deliberate penalties on 7 September 2017 and then personal liability notices on 3 November 2017. The directors appealed to the tribunal on 15 February 2018 after an HMRC review took place so the appeal was made in time.

Legal grounds for issuing a personal liability notice

In order for HMRC to issue a personal liability notice in the name of the responsible officer of the company, HMRC firstly has to establish that there is an inaccuracy in the tax return.

Paragraph 1 of Schedule 24 provides that a tax penalty is payable where a person (‘P’) gives HMRC a CIS return which contains an inaccuracy that amounts to or leads to an understatement of a liability to tax, where that inaccuracy was either ‘careless’ or ‘deliberate’.

HMRC then has to establish that the behaviour was deliberate in order to transfer the tax penalty to the company officer's name.

HMRC's guidance CH81150 states that:-

A deliberately but not concealed inaccuracy occurs when a person gives HMRC a document that they know contains an inaccuracy. It is not necessary to demonstrate that the person knew what the accurate figure was, only that they knew that the figure they put on the document was not accurate.

The tribunal acknowledges that the word ‘deliberate’ is not defined in the legislation, nor is there any currently binding case law, and the case law itself is not consistent. The tribunal identified that if a person in good faith believes a false statement to be true, then this cannot demonstrate deliberate intention, it may be careless, but not deliberate. Of course each case has to be judged on its merits as the establishment of behaviour can be deeply subjective and be interpreted differently, even in similar tax circumstances.

Once the tax penalty has been issued under deliberate category, then the following legislation allows for the penalty to be transferred personally in the company officer's name:

Paragraph 19 of Schedule 24 provides that in cases where a tax penalty is payable by a company for a deliberate inaccuracy which was attributable to an officer of the company, the officer is liable to pay such portion of the penalty (which may be 100%) as HMRC may specify by written notice to the officer.

The Tribunal was not persuaded on the evidence in this case that issues concerning preparation of Spectrumʼs CIS returns as a contractor were necessarily the kinds of matters that would have the attention of the top level decision makers in the company. The tribunal accepted that there were no evidence that the appellant personally benefited from the inaccuracies in Spectrum's returns. Even though HMRC produced a flow chart of other companies in the chain where the companies had become insolvent, the tribunal considered only the tax facts in relation to this individual company, Spectrum Ltd. HMRC have access to extensive third party resources, but at times the bigger picture created can make HMRC lose focus or blind them to the tax facts of the individual company.

The tribunal did acknowledge that in some cases fraud for deliberate behaviour can be established from the appellant's knowledge of the existence of fraud and can be inferred from that the circumstances of the appellantʼs business was so uncommercial and ‘too good to be true’ that the appellant should have realised that this could not possibly serve any legitimate purpose. However, in this case HMRC was not able to demonstrate on the balance of probability that the director personally benefited from the submission of inaccurate tax returns. The tribunal found that HMRC did not establish on the balance of probability the appellant lacked good faith belief that payments were outside the scope of the CIS.

This article was written by Jesminara Rahman who is the Director of Tax Resolute. For further enquiries on HMRC call us on 0750 803 4311. Alternatively, fill in our contact form on our contact page.

Tax Resolute Ltd. Company Number: 09597441 | All Rights Reserved