This case concerned a penalty imposed on the taxpayer by HMRC under regulation 42 of the Money Laundering Regulations 2007 (The Regulations) in relation to his failure to register as a tax adviser and an external accountant.

Background

The taxpayer practised as an accountant and tax adviser from the mid-90s. The register of external accountants and tax advisers was established in April 2008 and had a deadline for registration of January 2009. The taxpayer registered upon receiving a letter from HMRC in February 2011. HMRC issued the taxpayer a penalty for failure to register on time which the taxpayer appealed. The appeal centred around four main issues.

1. The first question for the Tribunal was whether the taxpayer was a tax adviser and whether he was an external accountant for the purpose of s. 3(7)(8) of the Regulations. In relation to both there was no doubt that the taxpayer gave tax advice and provided accountancy services. In relation to his role as a tax adviser, it was accepted that providing clients with information relating to their tax affairs in the course of business is clearly evidence of a tax adviser role.
2. The second question addressed by the Tribunal was whether HMRC took all reasonable steps to bring the decision to maintain a register under s. 32 of the Regulations, and if not, would it have made any difference. The Tribunal examined the avenues explored by HMRC in advertising the establishment of a register and accepted the taxpayer's contention that more appropriate and effective steps could have been taken. Ultimately the Tribunal felt that the quality of the advertisement could possibly become a factor in determining the size of any penalties which might be imposed.
3. The third question addressed by the Tribunal was whether the taxpayer had taken all reasonable steps and exercised all due diligence to ensure the requirement in s. 33 of the Regulations was met, i.e. that should he not be registered he would not practice for 6 months from the deadline for registration. The Tribunal accepted that this particular question was open to a multitude of factors including, the size of the enterprise and capacity. However, the Tribunal seemed to adhere to the generally accepted idea that “there was no get out of jail free card for those who were unaware of the law”. On the facts it determined that the taxpayer, despite being taken ill for a number of months, did not take all reasonable steps to comply with the Regulations and so the Tribunal did not consider the exercise of due diligence on his part.
4. The final question addressed whether a penalty should be imposed and what penalty would be affective, proportionate and dissuasive. In determining the value of the penalty, the Tribunal highlighted three issues as being determinative: the taxpayer's illness; his speedy compliance as soon as he became aware of his obligations, and, HMRC's failure to circulate an email to known tax advisers.

Final Decision

The FTT upheld HMRC's decision to impose the penalty. It was satisfied that the register had been established in accordance with the Regulations and that the taxpayer had not taken all reasonable steps and exercised due diligence in seeking inclusion on the register. The FTT therefore upheld a penalty but the amount was lesser than the original penalty issued by HMRC.

The judgment is heavily influenced by the particular facts of the case and is useful in showing some of the factors the FTT will and will not consider in imposing, reducing or indeed increasing a particular penalty imposed on a taxpayer.

The full text of the case is available at http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC01986.pdf