There are often dangers to executors dealing with estates without legal and accountancy advice and a recent tribunal hearing has highlighted one of these dangers.
The tribunal related to the completion of an income tax form for HMRC where the executors under-declared the income tax liability. In these circumstances, a penalty is payable by the estate. These are:
Where there is an error in a taxpayer’s return, a penalty may be payable. The level of penalty can depend on the behaviour of the taxpayer. The penalty tariffs for inaccuracies in documents for UK tax matters are as follows:
- 30% of the potential lost revenue for a careless action.
- 70% of the potential lost revenue for a deliberate but not concealed action.
- 100% of the potential lost revenue for a deliberate and concealed action.
HMRC have the discretion to reduce a penalty because of special circumstances.
In this case, the executors appealed against HMRC’s decision that they had deliberately under-declared income tax. Although the executors agreed the tax had been under-declared they said this was in part due to HMRC’s delay in dealing with the return. The executors were unaware that an advertisement notice to unknown creditors in the London Gazette of their intention to distribute the estate would have safeguarded them from personal liability to HMRC. The executors’ error although careless had been unintentional and the correct tax could easily have been paid had HMRC asked for it. HMRC accepted that the error was not deliberate but argued that a penalty for carelessness should still be paid.
The tribunal decided that the executors’ ignorance of the protective procedure of a notice and of accountancy procedures when administering an estate did not, alone, amount to special circumstances. The executors had chosen to risk the consequences of any shortcomings in their legal and accountancy knowledge by not taking advice from a professional. In this instance, the tribunal took into consideration HMRC’s mistakes and delay and the fact the estate had been distributed together with other factors and decided to reduce the penalty to nil.
However, it is a clear case that where professional advice had been taken the situation should never have arisen.
For further advice or assistance contact Suzanne Clifford-Brown.