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Agent was careless notwithstanding white space disclosure

27 July 2022

In Timothy Johnson and another v HMRC [2022] UKFTT 156 (TC), the First-tier Tribunal (FTT) held that discovery assessments were valid as a loss of tax had been brought about as a result of the taxpayers' agent's carelessness in completing their tax returns.


Timothy Johnson and Alison Johnson (the Appellants) ran a dental practice through a company and also a property business in their own names. They entered into a NatWest interest rate swap. Following a review by the FCA of such financial products, the Appellants were awarded £86,347.88 compensation by NatWest. Interest was identified at £18,509.24, on which basic rate tax was deducted at source. NatWest had informed the Appellants that they should declare the redress payment and HMRC had also provided guidance on its website which stated that such redress payments were taxable.

The Appellants' 2014 tax returns, which were prepared by their agent, contained a white space disclosure which stated: "a compensation payment of £43,218 was received during the year from NatWest in respect of interest rate hedging products which is not considered to be taxable". The Appellants argued that this white space disclosure provided sufficient information to HMRC to enable it to appreciate within the enquiry period that the self-assessment in the Appellants' tax returns may be insufficient.

HMRC issued discovery assessments to the Appellants, pursuant to section 29, TMA 1970, in respect of the tax year 2013/14 (the Assessments).

The Appellants appeal against the Assessments to the FTT.  

The sole issue before the FTT was whether, as HMRC submitted, a loss of tax had been brought about carelessly by a person acting on behalf of the Appellants, for the purposes of section 29(4), TMA 1970. It was agreed that if that was the case, then the Assessments were valid.

FTT decision

The appeals were dismissed.

HMRC accepted that an agent who reads HMRC guidance but takes a different, respectable technical view, is not careless. However, the FTT found that that was not the case in this instance. The Appellants' agent did not look at anything other than HMRC's guidance and failed to establish the full facts relating to the payments in question. The FTT had no doubt that the agent had acted in good faith, but this did not mean he took reasonable care. 

The FTT rejected the Appellants' argument that the white space disclosure made their agent's behaviour reasonable and not careless. The FTT said that that would only be relevant to an argument relying on section 29(5), TMA 1970 (the hypothetical officer test), whereas here the loss of tax was caused by the agent's failure to take reasonable care in returning the correct income in the Appellants' returns. 


Although, at first sight, it might seem surprising that the white space disclosure made in this case was of no assistance to the Appellants, such a disclosure, even if precise and detailed, will not provide a defence against a claim of carelessness under section 29(4), TMA 1970. Had carelessness not been in issue, section 29(5), TMA 1970, which pertains to what information was made available to a hypothetical officer of HMRC, would have been relevant and may have invalidated the Assessments. For carelessness, the standard is tested against that of a reasonably competent tax adviser, which in this case the agent failed. 

The decision can be viewed here.

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