Case Number: TC 09828
Taylor House, London
Appeal reference: TC/2024/03846
Keywords: Employee expenses; limited supporting evidence; careless or deliberate conduct; penalties
Judgment date: 27 March 2026
Before
TRIBUNAL JUDGE KEITH GORDON
MEMBER JOHN WOODMAN
Between
MR YASIR BADOUME
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: No-one attended
For the Respondents: Mrs Beverley Levy, litigator of HM Revenue and Customs’ Solicitor’s Office
DECISION
Preliminary issue – the absence of the appellant
Neither the Appellant nor his representative had arrived at the Tribunal hearing centre by the time that the hearing was due to start. The Tribunal’s clerks then called all four of the telephone numbers that were shown on the Notice of Appeal (the Appellant’s mobile number), two landline numbers for his representative (one of which continues to appear on the representative’s website https://www.welcomeaccountancy.co.uk/contact) and a mobile number for the representative (which also appeared on the website). However, no call was answered and it was not possible for any message to be left on any voicemail for any of the numbers given.
We noted that, on 15 January 2026, the representative had been notified of the hearing by e-mail and that the e-mail address used was both the e-mail shown on all the correspondence and that shown on the representative’s website.
We also noted that the Appellant had been personally notified by post (at the correct address per the Tribunal’s files) of the hearing – the letter also being dated 15 January 2026.
In the light of the foregoing, we find that reasonable steps had been taken to notify the Appellant and his representative of the hearing.
We also had to consider whether it was in the interests of justice to proceed with the hearing notwithstanding the absence of both the Appellant and his representative. In this regard, we noted:
the fact that this case concerns tax years going back almost ten years;
the almost zero engagement from the Appellant or his representative with the Tribunal since the submission of the Notice of Appeal: in particular, contrary to directions, no skeleton argument or witness statement had been produced on behalf of the Appellant;
the one engagement from the representative was a request for a previous hearing to be postponed (scheduled for December 2025) because of the tax return filing season – that confirmed that previous correspondence about the hearing was being received by the Appellant and/or his representative; there was no further postponement request in the two months since the Tribunal notified the parties of the present hearing and we note that the tax return filing season would have concluded in January;
the nature of the case and our belief that (although there were undoubtedly areas where the Appellant’s evidence might have clarified matters) we could reach a fair decision despite his and his representative’s absence.
We also took into account:
the Appellant’s rights under rule 38 which can mitigate any unfairness occasioned by us deciding to proceed with the hearing without him; and
the need for the Tribunal to conduct its work in an efficient manner bearing in mind its limited resources.
We also noted that HMRC’s witness had travelled to London from Scotland to be present at the hearing and we considered it would be unfair on HMRC to have to bear the costs of that (and indeed for them to have to devote more time to this case) if (as appeared to us) there were no good reasons for the Appellant’s absence.
In the light of the factors identified at ¶¶5 to 7 above, we decided that it was in the interests of justice to proceed with the hearing notwithstanding the Appellant’s and his representative’s absence.
Introduction
The documents provided to the Tribunal before the hearing were as follows:
a documents bundle including a witness statement from Officer Meehan which we adopted as evidence (541 pages);
an authorities bundle (437 pages);
a skeleton argument from HMRC.
The dispute primarily concerns expenses claimed on the Appellant’s tax returns. HMRC have decided that those expenses are not deductible from the Appellant’s income and reversed the expense claims made.
HMRC have also discovered that private medical insurance premiums paid by the Appellant’s employer (and returned on forms P11D) had not been reflected in the relevant tax returns.
HMRC have also issued penalties on the basis that the Appellant’s expense claims and the omissions of the medical insurance premiums were carelessly made.
The Appellant has appealed against the following decisions in relation to his income tax:
Tax year | Type of decision | Date of decision | Additional tax | Penalty charged |
|---|---|---|---|---|
2016-17 | TMA, s.29 assessment | 4 April 2023 | £1,319.80 | £376.14 |
2017-18 | TMA, s.29 assessment | 14 June 2023 | £2,258.20 | £643.58 |
2018-19 | TMA, s.29 assessment | 14 June 2023 | £5,865.40 | £1,671.63 |
2019-20 | TMA, s.29 assessment | 14 June 2023 | £4,511.00 | £1,285.63 |
2020-21 | TMA, s.29 assessment | 14 June 2023 | £6,590.80 | £1,680.65 |
2021-22 | TMA, s.28A amendment | 14 June 2023 | £8,819.40 | £2,248.94 |
Totals: | £29,364.60 | £7,906.57 | ||
For the reasons that follow, we decided to dismiss the appeals, although we have slightly reduced some of the penalties.
Facts of the case
The Appellant is an employee, whose income is subject to the PAYE system. He has no other source of income that has been identified by HMRC. His home is in Oxford.
On 29 January 2020, he sent HMRC a notice claiming that his employment expenses exceeded £2,500 and therefore wished to come within the Self Assessment system with effect from 6 April 2016. At the same time, the Appellant notified HMRC that he was authorising Welcome Accountancy Services to act as his agent.
In consequence, on 11 March 2020, notices to submit a Self Assessment tax return were issued to the Appellant in relation to the 2016-17, 2017-18 and 2018-19 tax years.
On 18 March 2020, tax returns for those three years were submitted electronically by Welcome Accountancy Services.
On 24 July 2020, a tax return for the 2019-20 tax year was submitted electronically by Welcome Accountancy Services. It was not clear whether HMRC had issued a section 8 notice to the Appellant in relation to that year or whether the return was a voluntary return.
On 23 April 2021, a tax return for the 2020-21 tax year was submitted electronically by Welcome Accountancy Services. It was not clear whether HMRC had issued a section 8 notice to the Appellant in relation to that year or whether the return was a voluntary return.
On 17 May 2022, a tax return for the 2021-22 tax year was submitted electronically by Welcome Accountancy Services. It was not clear whether HMRC had issued a section 8 notice to the Appellant in relation to that year or whether the return was a voluntary return.
The principal entries on these tax returns were as follows:
2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | 2021-22 | |
|---|---|---|---|---|---|---|
Employer | Relayware | Relayware | Homeserve | Homeserve | 1.Enterprise 2.Homeserve | Enterprise |
Income | £17,599 | £22,814 | £24,947 | £49,025 | 1.£45,167 2.£20,432 | £88,247 |
Travel expenses | £3,945 | £4,919 | £5,021 | £10,993 | 1.£5,421 2.£2,252 | £10,054 |
Professional fee and subscriptions | £417 | £489 | £484 | £1,011 | 1.£654 2.£213 | £654 |
Other expenses and capital allowances | £2,971 | £3,015 | £3,991 | £9,989 | 1.£5,511 2.£3,232 | £10,845 |
Overpayment of tax | £1,318 | £2,258 | £5,807.80 | Not clear to us | Not clear to us | £8,497.40 |
The tax overpayments claimed on the returns were duly repaid. In accordance with the instructions on the tax returns, those repayments were made to Welcome Accountancy Services.
The returns also made references to Student Loan deductions. These were amended by HMRC under TMA, section 9ZB in a couple of instances. However, as they are not relevant to the matters before us, we make no further comment in that regard.
On 3 February 2023, Officer Meehan wrote to the Appellant to notify him of the opening of an enquiry into his 2021-22 tax return (received by HMRC on 17 May 2022). It was expressly stated that the focus of the enquiry was into the Appellant’s expense claims. A breakdown of the expenses claimed in the 2021-22 return was requested.
On 28 February 2023, a Mr Omar Ali of Welcome Accountancy Services sent Officer Meehan a response by e-mail. The body of that e-mail read as follows.
This email is sent to you as HMRC compliance officer for Mr Y I Badoume reference CFS-2144148.
The job expenses claimed on behalf of the client for year 2021/22 were travel such as fuel and oils as well as repairs to vehicle and other expenses which amount to £10054 and for professional subscriptions £654 paid for safety insurance and £10845 paid for uniform cleaning and footwear not reimbursed by Enterprise DB and also capital allowances for vehicle and phones.
By UK tax laws 20 percent of expenses paid by taxpayer are allowed to be claimed but if and where expenses are excessive, please amend the figures.
Yours letter dated 6 February 2023 was received by us roughly about 10 days ago so we need more time, may be till the end of March 2023 to fully look into compliance issues so request extension.
On 7 March 2023, Officer Meehan responded by e-mail setting out the legislation and HMRC’s guidance concerning expense claims by employees. She noted that the detailed breakdown of the expenses was still awaited. She also asked for confirmation from the Appellant’s employer that none of these expenses had actually been reimbursed by the employer.
Officer Meehan requested the provision of information by 31 March 2023, failing which she would remove the expense claims from the 2021-22 return and recover the repaid tax in relation to previous tax years by way of discovery assessment.
This was acknowledged by Mr Ali on 29 March 2023 who wrote an e-mail as follows:
Our client mentioned meets all the requirements listed in your email to us, hence us being able to file and meeting the criteria for self-assessment.
Eight minutes later, Mr Ali sent a further e-mail which appears to respond to the request for corroborative evidence to justify the expense claims:
Furthermore and regarding this case, the backup was kept physically, and we shred these around 6 months after filing.
This issue coming to light for previous years is not fair for us and does not take into consideration business changes and compliances that we set out.
Additionally, we are moving completely digital and then this issue can be solved in the future if it was to occur.
In those two e-mails, Mr Omar Ali now had the title “Senior Partner” in his electronic signature.
Despite indicating that she would wait until 31 March 2023, Officer Meehan wrote to the Appellant on 30 March 2023 stating her indication to make discovery assessments for all the previous years back to 2016-17. (Footnote: 1)
An assessment for the 2016-17 year was duly made on 5 April 2023.
In the meantime, Officer Meehan wrote to Welcome Accountancy Services in response to their assertion as to the lack of records, seeking additional information that might corroborate the expense claims.
Mr Ali responded by e-mail on 2 May 2023 in the following terms.
We have been made aware you have attempted to contact our client.
We have emailed the previous email below in response to your questions and have not heard.
We also have an open case against HMRC due to how this compliance matter is/was handled, and the way HMRC have been harassing our clients and scaring them.
Other compliance officers have asked the below, which you have failed to do so:
What was your client’s job role?
What was their day-to-day duties?
Why did they incur the expenses?
Were these re-imbursed by the employer?
I look forward to hearing from you as a matter of urgency.
Again, Mr Omar Ali described himself as “Senior Partner” in his electronic signature.
It is unclear from Mr Ali’s e-mail whether he is accusing Officer Meehan in this case of harassing and/or scaring the Appellant or whether he is making a more general comment about HMRC’s interactions with other of Mr Ali’s clients. For the avoidance of doubt, we see absolutely nothing that merits the slightest of criticism about Officer Meehan’s conduct in this case as evidenced by her polite and patient tone in the correspondence that we have seen.
By contrast, we consider that Mr Ali’s request that he hear from Officer Meehan “as a matter of urgency” to be unnecessarily aggressive as, inter alia, there was nothing in the e-mail for Officer Meehan to answer.
By the fact that Mr Ali refers to other questions that other HMRC officer have asked, it can be inferred that the Appellant is not the only client of Welcome whose expenses are being looked at. This inference can be confirmed in the light of subsequent correspondence.
Officer Meehan then wrote a letter dated 11 May 2023 which was sent to Welcome Accountancy Services. The letter was described as a pre-assessment letter and was intended to give Welcome Accountancy Services advance warning of the actions she proposed to take for the 2016-17 to 2022-23 tax years. Of course, an assessment had already been made in relation to the 2016-17 tax year.
In addition to the reversal of the expense claims, Officer Meehan had by now discovered medical insurance premiums paid for the Appellant by his employer(s) from the 2018-19 tax year as returned on form P11D.
The effect of Officer Meehan’s proposals in relation to the other years was as follows:
Tax year | Expenses to be removed | Addition of medical benefit | Additional tax payable |
|---|---|---|---|
2017-18 | All | N/A | £2,258.20 |
2018-19 | All | £288 | £5,865.40 |
2019-20 | All | £562 | £4,511.00 |
2020-21 | All | £36 | £6,590.80 |
2021-22 | All | £483 | £8,814.40 |
As intimated in Officer Meehan’s letter, she proposed to make discovery assessments for all years, except in relation to the 2021-22 tax year for which an amendment would be made to the Self Assessment tax return for that year.
On 22 May 2023, Welcome Accountancy Services wrote a generic complaint to HMRC covering what looks like 18 similar cases (including the present). Within that complaint letter are the assertions that:
“many HMRC officer explicitly telling us 20 percent of expenses can be claimed as per gross pay” (grammar as per original);
Welcome Accountancy Services do not have the facilities to keep receipts for more than six months and many clients discard their receipts due to ignorance;
HMRC were directly targeting Welcome Accountancy Services in a way that amounts to prejudice: in particular, about 20% of the firm’s clients are from ethnic minority backgrounds and around 70 to 80% of those “targeted” are from those backgrounds; there was an express complaint of racial targeting.
We note that this letter was signed by a Shaukat Ali, Senior Partner. We do not know whether this is the same individual who was previously identified as Mr Omar Ali. We also note from the letterhead that the firm describes itself as “Welcome Accountancy Certified Accountants”. There is nothing further in any of the correspondence that suggests that the firm is actually recognised by the Association of Chartered Certified Accountants. Furthermore, leaving aside the inappropriate tone of Mr Omar Ali’s and Shaukat Ali’s correspondence, the idea that such a member firm could contemplate:
a suggestion that employees may be permitted to claim 20% of their income as expenses; and
making claims for expenses in the knowledge that the records would be destroyed within six months (notwithstanding the statutory retention periods)
to be sufficiently concerning to merit our sending a copy of this decision to the Association for their investigation. For the avoidance of doubt, we express no concluded view on any disciplinary issue or other enforcement matter; those are matters for the Association and/or its disciplinary process.
By letter dated 14 June 2023, Officer Meehan issued a closure notice in relation to the 2021-22 tax return. She also made discovery assessments for the 2017-18 to 2020-21 tax years. All of these decisions were in accordance with the proposals she had put forward on 11 May 2023.
It will be seen that the additional tax charged by the closure notice is £5 less than as set out in the table at ¶7 above. It is clear that this was a typographical error on the face of the closure notice itself: the correct figure can be easily deduced from the accompanying calculation (original repayment made £8,497.40; correct figure for tax due on the amended return £322.00). We accordingly have no hesitation in revising the figure due and use section 50(7) of the Taxes Management Act 1970 to the extent necessary.
On 30 June 2023, Officer Meehan wrote to Welcome Accountancy Services, with a further letter being sent to the Appellant personally, indicating her intention to issue penalty assessments. In her letter to the Appellant, Officer Meehan sought information that would allow her to assess the level of the Appellant’s culpability in this matter.
The Appellant sent a response to Officer Meehan by e-mail on 1 August 2023 (with a carbon copy being sent to Welcome Accountancy Services).
On 15 August 2023, Mr Omar Ali sent Officer Meehan copies of 30 receipts dated from 7 April 2021 to 2 December 2021. He said receipts for later periods would follow.
On 27 September 2023, Officer Meehan acknowledged these receipts but explained she needed more information as to the travel undertaken by the Appellant in the course of his work.
Mr Omar Ali responded on the next day as follows:
Mr Badoume travelled to many different locations for each tax year. These were usually at client work places. His primary work place is located in Bracknell, but travels to Scotland and Wales regularly due to work. Many of these travels are not reimbursed by the employer which are the expenses we have sent. Sometimes his employer will reimburse, and these expenses have NOT been included.
I understand their stance now, and want to request this matter closed as a matter of urgency. This has been on going for a very long time now.
On 2 October 2023, Officer Meehan explained that she required further information and also a letter from the Appellant’s employers confirming that he was not reimbursed for the travel expenses incurred.
It appears that no further response was given by Welcome Accountancy Services.
On 13 December 2023, HMRC sent the Appellant a notice advising of the likely penalties that would be charged to him. In all cases, the penalties were to be charged on the basis of careless conduct by the Appellant. The case was categorised as prompted giving rise to a penalty range of 15 to 30%. However, for the 2016-17 to 2019-20 years, HMRC restricted that range to 25 to 30% because their practice is to increase the lower bound of the penalty range by 10% in respect of old errors (normally three years). It was proposed that a 30% reduction (Footnote: 2) be given to reflect the limited co-operation given by or on behalf of the Appellant. Accordingly, the penalties proposed were 28.5% of the underpaid tax in relation to the 2016-17 to 2019-20 years and 25.5% of the underpaid tax in relation to the 2020-21 and 2021-22 tax years.
Mr Omar Ali then called Officer Meehan on 9 January 2024 and Officer Meehan said she would hold back on issuing any penalty assessment until she had received what she needed.
On 1 February 2024, Mr Omar Ali sent Officer Meehan an e-mail to which a spreadsheet schedule was attached identifying travel undertaken by the Appellant between 7 April 2021 and 2 December 2021 (coinciding with the schedule previously provided but now identifying places travelled to and the approximate mileage travelled. Again the data for the period after 2 December 2021 would be unavailable “until end of tax year”.
On 4 February 2024, Mr Omar Ali also provided a copy of a letter from Enterprise saying that the employer does not reimburse travel expenses.
On 19 February 2024, following a missed call from Officer Meehan, Mr Omar Ali advised her by e-mail of the vehicle registration number of the Appellant’s car and former vehicle.
On 25 March 2024, Officer Meehan wrote to the Appellant noting discrepancies in the information provided by Mr Ali. In particular:
the claimed mileage in 8 months of the 2021-22 tax year was 13,718;
the total actual mileage of the vehicle used by the Appellant for the whole of that tax year (as extracted and extrapolated from MOT records) was 10,700.
Penalty assessments were issued on the same day for the amounts as shown in the table at ¶7 above.
Following objections to the penalty assessments, a different HMRC offered the Appellant an internal review in June 2024. A copy of much of the correspondence was sent to Welcome Accountancy Services in July 2024.
On 20 August 2024, Mr Shaukat Ali (now described as “Senior Accountant”) provided what we interpret to be a holding reply:
This is a racial issue as my practice has been targeted on prejudice basis and I have clear proof of that and I am awaiting full reply from The Chief Executive.
The Appellant’s Notice of Appeal was received by the Tribunal on 6 September 2024. It correctly noted that the appeal was being notified late. However, the appeal has been permitted to proceed.
Legislation
Travel expenses
It is well known that the scope for employees to claim a deduction from their employment income is limited.
The general rule is found in the Income Tax (Earnings and Pensions) Act 2003, section 336 which reads as follows:
Deductions for expenses: the general rule
The general rule is that a deduction from earnings is allowed for an amount if—
the employee is obliged to incur and pay it as holder of the employment, and
the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment.
The following provisions of this Chapter contain additional rules allowing deductions for particular kinds of expenses and rules preventing particular kinds of deductions.
No deduction is allowed under this section for an amount that is deductible under sections 337 to 342 (travel expenses).
A different, but prescriptive, rule applies for travel expenses as per sections 337 and 338:
Travel in performance of duties
337(1) A deduction from earnings is allowed for travel expenses if—
the employee is obliged to incur and pay them as holder of the employment, and
the expenses are necessarily incurred on travelling in the performance of the duties of the employment.
This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).
Travel for necessary attendance
338(1) A deduction from earnings is allowed for travel expenses if—
the employee is obliged to incur and pay them as holder of the employment, and
the expenses are attributable to the employee’s necessary attendance at any place in the performance of the duties of the employment.
Subsection (1) does not apply to the expenses of ordinary commuting or travel between any two places that is for practical purposes substantially ordinary commuting.
In this section “ordinary commuting” means travel between—
the employee’s home and a permanent workplace, or
a place that is not a workplace and a permanent workplace.
Subsection (1) does not apply to the expenses of private travel or travel between any two places that is for practical purposes substantially private travel.
In subsection (4) “private travel” means travel between—
the employee’s home and a place that is not a workplace, or
two places neither of which is a workplace.
This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).
Discovery assessments
The power to make a discovery assessment is conferred by the Taxes Management Act 1970, section 29 which, at the dates of the assessments made (April and June 2023), read as follows (so far as is relevant to this case):
Assessment where loss of tax discovered.
If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—
that an amount of income tax or capital gains tax ought to have been assessed but has not been assessed,
that an assessment to tax is or has become insufficient, or
that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.
Where—
the situation mentioned in subsection (1) above is attributable to an error or mistake in the return as to the basis on which his liability ought to have been computed,
the taxpayer shall not be assessed under that subsection in respect of the year of assessment there mentioned if the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made.
Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above—
in respect of the year of assessment mentioned in that subsection; and
in the same capacity as that in which he made and delivered the return,
unless one of the two conditions mentioned below is fulfilled.
The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf.
…
In summary, as the case law has made clear, an officer has to reach a conclusion (the subjective element) that tax has been underpaid and that conclusion has to be reasonable (the objective element) (Anderson v HMRC [2018] UKUT 159 (TCC) at [25], [29]).
There are time limits that govern the timing of discovery assessments. So far as is relevant to the present case, the key statutory provisions are:
34 Ordinary time limit of 4 years
Subject to the following provisions of this Act, and to any other provisions of the Taxes Acts allowing a longer period in any particular class of case, an assessment to income tax or capital gains tax may be made at any time not more than 4 years after the end of the year of assessment to which it relates.
An objection to the making of any assessment on the ground that the time limit for making it has expired shall only be made on an appeal against the assessment.
36 Loss of tax brought about carelessly or deliberately etc
An assessment on a person in a case involving a loss of income tax or capital gains tax brought about carelessly by the person may be made at any time not more than 6 years after the end of the year of assessment to which it relates (subject to subsection (1A) and any other provision of the Taxes Acts allowing a longer period).
An assessment on a person in a case involving a loss of income tax or capital gains tax —
brought about deliberately by the person, …
may be made at any time not more than 20 years after the end of the year of assessment to which it relates (subject to any provision of the Taxes Acts allowing a longer period).
In subsections (1) and (1A) references to a loss brought about by the person who is the subject of the assessment include a loss brought about by another person acting on behalf of that person.
Relevant to both sections 29(4) and 36 is the following provision within the Taxes Management Act 1970, section 118:
For the purposes of this Act a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation.
Closure notice
The procedures for closing enquiries are found within the Taxes Management Act 1970, section 28A. So far as is relevant to this case, the provisions read as follows:
The enquiry is completed when an officer of Revenue and Customs informs the taxpayer by notice (a “final closure notice”) —
in a case where no partial closure notice has been given, that the officer has completed his enquiries, or
in a case where one or more partial closure notices have been given, that the officer has completed his remaining enquiries.
A partial or final closure notice must state the officer’s conclusions and—
state that in the officer’s opinion no amendment of the return is required, or
make the amendments of the return required to give effect to his conclusions.
Provided that the enquiry was opened in time, the only real constraint on the officer’s actions are for the closure notice to reflect the officer’s actual conclusions (as per subsection (2)) and for those conclusions to be reasonably held (by analogy with the position for discovery assessments and public law decisions more generally).
Penalties
The penalty provisions are found in the Finance Act 2007, Schedule 24.
For the purposes of this case, the following provisions are relevant.
Error in taxpayer's document
1(1) A penalty is payable by a person (P) where—
P gives HMRC a document of a kind listed in the Table below, and
Conditions 1 and 2 are satisfied.
Condition 2 is that the inaccuracy was careless (within the meaning of paragraph 3) or deliberate on P’s part.
…
Degrees of culpability
3(1) For the purposes of a penalty under paragraph 1, inaccuracy in a document given by P to HMRC is—
“careless” if the inaccuracy is due to failure by P to take reasonable care, ...
Standard amount
4(1) This paragraph sets out the penalty payable under paragraph 1.
If the inaccuracy is in category 1, the penalty is—
for careless action, 30% of the potential lost revenue, …
4A(1) An inaccuracy is in category 1 if—
it involves a domestic matter, or …
Potential lost revenue: normal rule
5(1) “The potential lost revenue” in respect of an inaccuracy in a document (including an inaccuracy attributable to a supply of false information or withholding of information) or a failure to notify an under-assessment is the additional amount due or payable in respect of tax as a result of correcting the inaccuracy or assessment.
The reference in sub-paragraph (1) to the additional amount due or payable includes a reference to—
an amount payable to HMRC having been erroneously paid by way of repayment of tax, and
an amount which would have been repayable by HMRC had the inaccuracy or assessment not been corrected.
10(1) If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure.
But the standard percentage may not be reduced to a percentage that is below the minimum shown for it—
in the case of a prompted disclosure, in column 2 of the Table, and
in the case of an unprompted disclosure, in column 3 of the Table.
Standard % | Minimum % for prompted disclosure | Minimum % for unprompted disclosure |
30% | 15% | 0% |
Special reduction
11(1) If they think it right because of special circumstances, HMRC may reduce a penalty under paragraph 1, 1A or 2.
Suspension
14(1) HMRC may suspend all or part of a penalty for a careless inaccuracy under paragraph 1 by notice in writing to P.
Appeal
15(1) A person may appeal against a decision of HMRC that a penalty is payable by the person.
A person may appeal against a decision of HMRC as to the amount of a penalty payable by the person.
A person may appeal against a decision of HMRC not to suspend a penalty payable by the person.
17(1) On an appeal under paragraph 15(1) the tribunal may affirm or cancel HMRC's decision.
On an appeal under paragraph 15(2) the tribunal may—
affirm HMRC's decision, or
substitute for HMRC's decision another decision that HMRC had power to make.
If the tribunal substitutes its decision for HMRC's, the tribunal may rely on paragraph 11—
to the same extent as HMRC (which may mean applying the same percentage reduction as HMRC to a different starting point), or
to a different extent, but only if the tribunal thinks that HMRC's decision in respect of the application of paragraph 11 was flawed.
On an appeal under paragraph 15(3)—
the tribunal may order HMRC to suspend the penalty only if it thinks that HMRC's decision not to suspend was flawed, and
if the tribunal orders HMRC to suspend the penalty—
P may appeal against a provision of the notice of suspension, and
the tribunal may order HMRC to amend the notice.
The burden of proof
HMRC must prove that the decisions reflect the conclusions made by the officer and that those conclusions were reasonably held.
HMRC must also prove the conduct complained of (both to justify the assessment under section 29(4) and the penalty assessment).
Once those thresholds are passed, it is for the taxpayer to demonstrate:
that the discovery assessments or closure notice overstate the tax payable; and/or
the penalties are excessive or that HMRC’s decision on suspension is flawed.
The Appellant’s grounds of appeal
The only substantive communication received by the Tribunal from or on behalf of the Appellant has been his notice of appeal where the grounds of appeal are set out as follows:
All backup provided to HMRC including receipts. Also provided log of expenses.
HMRC reason for rejecting is ‘based on assumption’ which is no grounds for rejection.
We address those submissions in due course.
Discussion
Validity of amendment to return per closure notice
The notice of enquiry was issued to the Appellant’s home address within less than 12 months of the date on which the 2021-22 return was filed. Not only was the notice acknowledged on behalf of the Appellant, but there was no suggestion made in any of the correspondence that the enquiry was invalidly opened. We therefore conclude that the enquiry was validly opened.
We thus turn to the closure notice itself.
It is clear that, in the course of her investigations into the 2021-22 tax return, Officer Meehan concluded that the expense claims made on the Appellant’s tax return were invalid by the time the closure notice was issued. The subjective element is therefore met.
Furthermore, such a conclusion is, in our view, a wholly reasonably one to reach. We say so for the following reasons:
Officer Meehan had asked for a breakdown of those expenses, but merely obtained repetition of the headline figures that the Appellant had included on his tax return.
Furthermore, rather than evidence the asserted expenditure in any way, the Appellant’s representative made the bizarre assertion that “By UK tax laws 20 percent of expenses paid by taxpayer are allowed to be claimed”.
We assume that the word “expenses” was actually meant to refer to “income” as, otherwise, it would be saying that taxpayers can claim deductions only for a fifth of their actual expenditure.
On either interpretation, not only was such an assertion outside any reasonable interpretation of the rules concerning the deduction of employees’ expenses (which are “notoriously rigid, narrow and restricted in their operation”, per, for example, Michael v HMRC [2026] UKFTT 96 (TC) at [36]), but Officer Meehan was entitled to deduce that the expense claims actually made had been based on this utterly false premise.
Even though the rules for the deduction of travel expenses are a little less restrictive, the bald and wrong suggestion that a 20% deduction may be claimed was enough to tell Officer Meehan that the travel expense aspect of the claims made on the tax return was wrong.
It would also have been obvious to Officer Meehan that, even if a 20% deduction were somehow permissible, it would not explain the allocation of those expenses to three distinct headings.
Officer Meehan’s fully justifiable concern about the accuracy of the claims would be further reinforced by the representative’s suggestion “but if and where expenses are excessive, please amend the figures”. To a reasonable reader, this suggests that the representative himself had little confidence in the accuracy of the figures previously provided.
Officer Meehan’s valid doubts about the accuracy of the tax return figures would have been further reinforced by the representative’s continued refusal to answer her reasonable queries and then the further bizarre suggestion that the representative destroys all records within six months due to space restrictions. Given that the representative firm purports to be registered with the Association of Chartered Certified Accountants, this wholly haphazard approach to maintaining client records (in clear breach of the statutory rules for the retention of supporting documentation within the Taxes Management Act 1970) is another clear indicator that the veracity of the claims made is unlikely.
The above describes the state of Officer Meehan’s knowledge as at the end of March 2023 (shortly after which the first discovery assessment was made). We make this observation because of the need to consider the validity of the discovery assessments in due course.
The closure notice was not issued until June 2023. However, there was no further information received by Officer Meehan that either did or could reasonably have cast any doubts on her belief that the expense claims on the 2021-22 tax return were without foundation.
By now, by virtue of the P11Ds filed by the Appellant’s employer(s), Officer Meehan also had prima facie evidence that the Appellant had an assessable benefit in kind which had not been reflected in his tax returns.
For these reasons, we conclude that:
the decision to remove the expense claims from the 2021-22 tax return and to add a benefit-in-kind in relation to the private medical insurance accurately reflected Officer Meehan’s subjective conclusion as at June 2023; and
that conclusion was objectively reasonable on the basis of the information available to her.
Accordingly, the closure notice was procedurally valid.
Validity of discovery assessment
Since the circumstances surrounding the previous tax years were identical to the year under enquiry, this is a clear case where the presumption of continuity would apply. For the foregoing reasons, we conclude that:
a valid discovery had been made by 4 April 2023 (in relation to the 2016-17 tax year) and by 14 June 2023 (in relation to the 2017-18 to 2020-21 tax years); and
the assessments made accurately reflected the under-assessments identified.
Accordingly, the requirements of section 29(1) are met.
We now turn to the additional hurdles that HMRC have to overcome in order to justify a discovery assessment in respect of those tax years (since returns for those years were submitted).
HMRC’s case was based on the condition in section 29(4) and, thus, we make no finding on the alternative condition in section 29(5).
It is our decision that HMRC satisfy the section 29(4) condition in at least three of the four permutations permissible under that subsection.
We conclude that the under-assessment was primarily caused by the deliberate conduct of Welcome Accountancy Services in that we conclude that they submitted the returns on behalf of the Appellant knowing that the expense claims made were inaccurate and that they overstated the employment expenses incurred by the Appellant in each of the years concerned.
If that is wrong, we would have concluded that the excessive expense claims were caused by the careless conduct of Welcome Accountancy Services. The omission of the benefit-in-kind was undoubtedly careless.
In any event, we conclude that the under-assessment was caused by the careless conduct of the Appellant.
Our reasons are as follows.
So far as Welcome Accountancy Services are concerned:
We do not consider it was credible that anyone at Welcome Accountancy Services had any belief in the accuracy of the expense claims made. We do not accept that records were shredded after six months because we do not believe that there were ever any records to shred; the expense claims were, in our view, a figment of the imagination of whoever at Welcome Accountancy Services completed the Appellant’s tax returns.
We do not believe that anyone at Welcome Accountancy Services actually believed that a 20% expense allowance was permissible from employees’ earnings. This suggestion is so implausible (even more so emanating from an representative firm that purports to be a member of the ACCA) that we would need considerable persuasion to conclude that it represented a sincerely-held belief. Given the lack of engagement with the appeal process, the opportunity to try to so persuade us has passed. The unbelievability of Welcome Accountancy Services’ purported belief is exacerbated by the fact that, rather than claim such a deduction as some form of allowance, claims were made across three different headings.
A further factor was the nature of the responses from Welcome Accountancy Services. There was no real attempt to comply with Officer Meehan’s reasonable requests for supporting evidence and, instead, Welcome Accountancy Services went (unreasonably) on the attack. Had there been any integrity (as befitting a supposedly professional firm), we consider that (at the very least) there would have been a prompt admission that the expense claims made could not be justified.
The previous point is then further reinforced by the fact that, after claiming that documentary evidence is shredded after six months, receipts were unearthed for an eight-month period (with further evidence repeatedly promised to come later, but which was never produced). These receipts could not be readily reconciled with the travel expenditure claimed – there was at no stage any attempt to justify the other categories of expenditure that had been claimed.
Subsequently, Welcome Accountancy Services produced a travel schedule which could be reconciled with the receipts previously provided. However, that schedule actually aggravated the situation because it made no sense whatsoever.
Many of the journeys identified could (rationally) be recognised as either round trips from the Appellant’s Oxford home to supposed places of work or a multi-leg journey from home to two or more workplaces before the return home. However, there were also instances where the Appellant claimed the business mileage to a supposed workplace but not for the return leg.
We accept it was possible that a claim was simply not made (for whatever reason) for the return leg in those circumstances. However, looking at the schedule as a whole and in the circumstances of the case, we conclude that the schedule was prepared in order to fit in with the receipts previously provided and the travel expense claim previously made rather than to accord with any reality.
Furthermore, HMRC exhibited MOT records for the vehicles supposedly driven by the Appellant during the 2020 to 2022 periods which showed that the actual vehicle mileage (when annualised) was lower than the mileage claimed on the schedule to have been undertaken.
If, despite the foregoing, the conduct of Welcome Accountancy Services falls short of the threshold for deliberate conduct, we consider it to amount to reckless conduct in that the expenses were claimed by Welcome Accountancy Services without any care as to their relationship with reality.
So far as the omission of the benefit-in-kind from the private health insurance is concerned (the 2018-19 to 2020-21 tax years), we conclude that any reasonable accountant would have asked about the P11Ds when preparing the tax returns and, in the absence of any persuasive answer from the Appellant, would have sought confirmation of the position from either the Appellant’s employer(s) or from HMRC. This omission was caused by the careless conduct of Welcome Accountancy Services.
As far as the Appellant’s conduct is concerned, we did wonder whether he was actually the victim of a repayment fraud being perpetrated by Welcome Accountancy Services in which he was the unwitting cipher. Our particular concern was that there was very little in our bundles that we could directly attribute to the Appellant and there was a risk that even the information purporting to come from him was fabricated without his knowledge. (Footnote: 3)
However, on balance we conclude on the basis of the evidence before us that he was a knowing recipient of tax refunds and that he (at the very least) should have realised were probably not due to him. (Footnote: 4) In particular, we conclude that the Appellant did actually engage Welcome Accountancy Services as we note that they were able to obtain the Appellant’s National Insurance number (Footnote: 5) and we do not see any realistic way for them to have obtained this without the Appellant’s knowledge and input. Furthermore, the Appellant would have been in receipt of certain communications from HMRC (most notably, the appealable decisions themselves and the review correspondence). By that stage, he must have known that Welcome Accountancy Services were not doing him any favours but yet he continued to rely on their services and did not either seek independent and competent advice nor contact HMRC with a view to resolving matters. For these reasons, we conclude that the Appellant was a willing participator of whatever Welcome Accountancy Services were doing and that he failed to take reasonable care to avoid bringing about the loss of tax occasioned by the errors made by Welcome Accountancy Services on his behalf. That satisfies the deeming provision in section 118(5) and, therefore, means that there has been relevant careless conduct by the Appellant himself.
As we have concluded that section 29(4) is satisfied, the extended time limits in section 36 are met. (In any event, the assessments for the 2019-20 and 2020-21 tax years were within the normal section 34 time limit and, therefore, for those years, there was no need to consider section 36.)
Accordingly, all discovery assessments were procedurally valid.
Has the Appellant discharged the burden of proof to reduce the amounts charged?
The only evidence provided by the Appellant to suggest that the disallowance of the expenses claimed was excessive is the set of receipts and the travel schedule. We have already explained why we do not accept that evidence. Accordingly, there is nothing before us that comes anywhere near to persuading us that the Appellant has been overcharged by the discovery assessments or the closure notice.
The Appellant’s second ground of appeal is his challenge to the assumptions underlying the discovery assessments and the closure notice. However, it has long been established that HMRC are entitled to make reasonable assumptions when making an assessment or an amendment via a closure notice. In this case, we go further. We say that it was inevitable that the expenses claimed would be rejected in their entirety given the Appellant’s complete failure to provide anything to corroborate any of the alleged expenditure.
For these reasons, the Appellant has not persuaded us that there should be any reduction to the tax charged under the Taxes Management Act 1970, section 50(6).
For these reasons, we uphold the discovery assessments and the closure notice.
Penalties
Although our findings above about the Appellant’s careless conduct were made in the context of the discovery assessments, the facts apply equally to all of the years (i.e. including the enquiry year as well). For the purposes of Schedule 24, the equivalent to section 118(5) is found in paragraph 18(3) where a taxpayer is able to avoid a penalty in such circumstances only if he can show that he “took reasonable care to avoid inaccuracy”. The Appellant has failed to do so in this case.
Accordingly, we conclude that a penalty is payable for all years.
We also agree with HMRC that the penalty falls into the prompted category because any information provided by or on behalf of the Appellant was only after HMRC had started enquiring into the Appellant’s affairs and it was reasonable, by that stage, that HMRC would discover the errors.
Thus the appropriate penalty range for each year is 15 to 30%.
We see no reason to adjust the discounts offered by HMRC in relation to the co-operation provided by the Appellant through Welcome Accountancy Services. In particular, we do not consider that any greater discount is appropriate given the limited assistance actually provided. However, we do consider that the restriction of the penalty range by 10% for the older years (see ¶54 above) is inappropriate in the present case.
We accept what Mrs Levy said about the choice of penalty percentage within the statutory range is ultimately to be chosen by the exercise of HMRC discretion.
We similarly accept that, as a result, there is nothing intrinsically wrong with HMRC choosing any penalty percentage within the 15 to 30% range provided that the discount does reflect the taxpayer’s co-operation.
However, public law requirements must also be adhered to and, in a situation like this where published guidance has been issued and purportedly followed, we consider that consistency of treatment with other taxpayers and fairness to the Appellant require that guidance to be followed, unless there are good reasons not to.
In this case, the 10% restriction was explained in the penalty explanation letter provided to the Appellant on 13 December 2023. That guidance read (so far as is relevant) as follows:
If you’ve taken a significant period (normally 3 years) to correct or disclose the failure we’ll restrict the maximum reduction by 10% before working out any further reductions to reflect the quality of disclosure.
We can see, therefore, why ordinarily penalties imposed after more than three years will risk attracting a higher penalty than penalties for more recent errors. However, this was a case where all the errors were made less than three years before HMRC started investigating the case. In the circumstances, we do not consider that (following the guidance) the 10% restriction should apply. Mrs Levy did not object to this proposal when we raised it at the hearing. We therefore decide that the calculation of the penalty for all years should be undertaken by applying the discount to the full range of possible penalties from 15 to 30%. Accordingly, with a 30% discount, the penalty for all years should be reduced by 4.5% and, thus, be calculated as 25.5% of the under-assessed tax in each year.
We accept what HMRC said about not suspending the Appellant’s penalties. He has been taken out of Self Assessment and is once again a taxpayer fully within the PAYE system. HMRC’s approach to suspension is in our view reasonable and, therefore, we cannot interfere with that aspect of the decision.
Similarly, we cannot see any reason why the penalties should be further reduced for any special circumstances. In any event, we cannot fault HMRC’s approach to the question and, therefore, once again, we cannot interfere with that aspect of the decision.
Therefore, except for the slight reduction in the earlier years’ penalties, we uphold the penalty assessments.
Conclusion
For the above reasons, we dismiss the appeal and, subject to the slight reduction in some of the penalties, we uphold all of HMRC’s decisions. The revised position is as follows:
Tax year | Type of decision | Additional tax | Penalty charged | |||
|---|---|---|---|---|---|---|
2016-17 | TMA, s.29 assessment | £1,319.80 | £336.55 | |||
2017-18 | TMA, s.29 assessment | £2,258.20 | £575.84 | |||
2018-19 | TMA, s.29 assessment | £5,865.40 | £1,495.68 | |||
2019-20 | TMA, s.29 assessment | £4,511.00 | £1,150.31 | |||
2020-21 | TMA, s.29 assessment | £6,590.80 | £1,680.65 | |||
2021-22 | TMA, s.28A amendment | £8,819.40 | £2,248.94 | |||
Totals: | £29,364.60 | £7,487.97 | ||||
Right to apply for permission to appeal
This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.
Release date:
27 March 2026