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Tribunal cancels penalty imposed against doctor and criticises unreasonable HMRC behaviour

18 April 2017

In Dr Ragini Pandey v HMRC [2017] UKFTT 0216 (TC), the First-tier Tribunal (FTT) cancelled a penalty which had been issued by HMRC under paragraph 1, Schedule 24, Finance Act 2007 and in so doing criticised HMRC's 'unreasonable' behaviour.

Dr Pandey (the Appellant), is a paediatric heart surgeon who appealed against the imposition of a penalty under paragraph 1, Schedule 24, Finance Act 2007, which HMRC had issued in respect of two careless inaccuracies in her 2009/10 tax return. 

The Appellant had worked at successive hospitals in the UK up to June 2011. From June 2011 to February 2013, she worked in Australia before returning to work at the UH Bristol NHS Trust. Her only source of income whilst working in the UK was her NHS salary, which was subject to PAYE.

In August 2012, when the Appellant was working in Australia, she received a telephone call from HMRC informing her that she owed over £100,000 tax and seeking an attachment of earnings order. Although working in Australia, the Appellant did what she could to assist HMRC and her accountant duly filed her 2009/10 and other returns, in 2013. HMRC subsequently opened an enquiry into the Appellant's 2009/10 return, under section 9A, Taxes Management Act 1970, because it considered she had omitted to include employment income. 

In January 2015, HMRC sent the Appellant notice of an attachment of earnings order it proposed to apply for. HMRC also sent a letter warning of the possibility of a penalty under Schedule 24, Finance Act 2007, for inaccuracies in the Appellant's 2009/10 tax return.  

Although the matter was resolved, HMRC issued a penalty assessment to the Appellant on 21 April 2015, for inaccuracies in her 2009/10 tax return. The Appellant appealed this assessment.

FTT's decision

The appeal was preceded by an application by the Appellant for permission to appeal out of time. Adopting the three stage approach set out in Denton v TH White Ltd [2014] EWCA Civ 906, the FTT gave permission to appeal out of time and proceeded to hear the substantive appeal.

The FTT began by considering whether the Appellant had been careless, for the purposes of Schedule 24, Finance Act 2007. Although by omitting to include the Appellant's only income (and the tax deducted from it under PAYE) in 2009/10, the Appellant's accountants had been careless, that of itself, did not make the Appellant's actions careless. It was the accountant who "gave" the document containing the inaccuracies to HMRC, within the meaning of paragraph 1, Schedule 24, Finance Act 2007, not the Appellant. However, paragraph 18, Schedule 24, has its own self-contained code on agency in relation to careless behaviour and the filing of a return on a taxpayer's behalf is to be treated as the taxpayer giving the document to HMRC. Although there is an exception under paragraph 18(3), if it can be shown that the taxpayer took "reasonable care to avoid inaccuracy", in the circumstances of the instant case this had not been established and in the FTT's view the Appellant had been careless by not checking her return. 

However, the FTT found that there was no loss of tax to HMRC. Throughout 2009/10 the Appellant's employers had used incorrect PAYE codes. Accordingly, there had been a failure to deduct the right amount of tax from the Appellant's salary and she would have been entitled to a credit under regulation 185(5), Income Tax (PAYE) Regulations 2003. 

The appeal was therefore allowed and the penalty cancelled on the basis that there had been no understatement of tax.


The FTT's decision begins with the opening sentence: "Well here we go again". The judge (Judge Richard Thomas) was quoting from the opening sentence of the decision of Judge Nicholas Wikeley in NI v HMRC [2015] UKUT 160 (AAC), a decision relating to tax credits, which was one in a long list of such cases which came before the Upper Tribunal's Administrative Appeals Chamber in which there had been a catalogue of errors by HMRC. In delivering his decision in the present case, Judge Thomas criticised HMRC's behaviour as unreasonable and said the case should never have reached the FTT. He agreed with the Appellant's accountant that it was "astonishing" that a determination charging over £50,000 could be made in a case where a person is clearly a PAYE only employee earning in the region of £60,000, with PAYE fully deducted in the relevant year as shown on HMRC's own records. 

In the light of HMRC's unreasonable behaviour, the FTT ordered HMRC to pay the Appellant's costs. This is to include the cost of her travel to and from India to attend the hearing. 

This is, as Judge Thomas noted, not the first case to come before the FTT where HMRC's approach to Schedule 24, Finance Act 2007, has been severely criticised. It is encouraging that the FTT is penalising unreasonable conduct on the part of HMRC with the award of costs against it. It is to be hoped that an adverse costs order, together with such judicial criticism, will result in HMRC modifying its conduct accordingly. 

A copy of the decision can be viewed here.