Upper Tribunal confirms that “deliberate” penalties do not require proof of dishonesty

United KingdomScotland

In CF Booth Limited v HMRC [2022] UKUT 00217 (TCC), the Upper Tribunal (“UT”) upheld an earlier decision of the First-tier Tribunal (“FTT”) to strike out most of the taxpayer’s appeal against a “deliberate” penalty on the basis that it constituted an abuse of process and had no realistic prospect of success.


Schedule 24 to the Finance Act 2007 (“Schedule 24”) provides for a penalty to be assessed where a taxpayer carelessly or deliberately provides HMRC with an inaccurate document (such as an incorrect tax return) that leads to an understatement of liability or overstatement of repayment. The legislation recognises different degrees of taxpayer culpability (i.e., careless or deliberate) to decide the amount of penalty to be assessed. Reductions in penalties can also be given based on the quality and timing of taxpayer disclosure or, where applicable, for any special circumstances.

In CF Booth, the taxpayer had been issued with a penalty assessment on the basis that its VAT returns for the periods in question contained deliberate inaccuracies. The background to that penalty assessment was that, in an earlier decision of the FTT ([2017] UKFTT 813 (TC)), it was held that the taxpayer knew (or, in the alternative, should have known) that a number of transactions to which it was a party were connected to the fraudulent evasion of VAT.

Despite not appealing the FTT’s decision regarding the underlying VAT assessment, the taxpayer decided nevertheless to appeal the penalty assessment, including on the basis that the inaccuracies in its VAT returns were not “deliberate” for the purposes of Schedule 24. HMRC applied to the FTT for most of the taxpayer’s grounds of appeal to be struck out on the basis that they were an abuse of process (effectively re-litigating matters that had already been determined) or were otherwise unarguable. The FTT agreed to the strike out, leaving the taxpayer only able to argue for further reductions in the amount of the deliberate penalty based on the quality of taxpayer disclosure.


The taxpayer’s appeal against the FTT’s strike out decision included, inter alia, the argument that HMRC needed to prove dishonesty in order for there to be “deliberate” conduct for the purposes of Schedule 24 (such that the earlier findings of the FTT were not sufficient).

The UT rejected that argument, reaffirming the well-known decision in Auxilium Project Management v HMRC [2016] 0240 (TC) that a deliberate accuracy under Schedule 24 occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. In HMRC v Tooth [2021] UKSC 17, the Supreme Court had also considered the meaning of a “deliberate” inaccuracy (albeit in the context of discovery assessment legislation rather than penalties), deciding that this required an “intention to mislead [HMRC] on the part of the taxpayer as to the truth of the relevant statement or, perhaps…recklessness as to whether it would do so”. The UT decided that nothing in the Supreme Court’s decision called into question the test set out in Auxilium in respect of Schedule 24 penalties.

The taxpayer also argued that HMRC needed to prove that the person who actually completed and filed the VAT returns had knowledge that they were inaccurate. The UT dismissed this, confirming that it is not necessary to attribute knowledge to a particular individual (or else a penalty could simply be avoided by keeping the person completing the returns in the dark as to the Appellant’s knowledge that its transactions were connected with the fraudulent evasion of VAT). The FTT had already found that the taxpayer knew before submitting the returns that the transactions were connected with fraud and that finding had not been appealed.

The UT also held that Article 6 ECHR protection did not prevent the FTT from striking out the appeal. A penalty assessment constitutes a criminal charge for the purposes of Article 6, even though for domestic law purposes it is treated as a civil matter. The UT was satisfied that that the taxpayer had received a fair trial and that the FTT’s procedural rules did not infringe Article 6.


The UT’s decision is important in confirming the correct test for “deliberate” conduct for the purposes of Schedule 24 following the Supreme Court’s related decision in Tooth and, in particular, that no element of dishonesty is required.

The UT’s decision is ultimately not surprising given the taxpayer had not appealed the FTT’s earlier factual findings. When litigating a tax assessment (and certainly before making any decision whether to appeal an adverse decision), taxpayers should ensure that proper consideration is also given to any subsequent penalty proceedings that may arise and the consequential impact that any adverse decision may have.

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Where a dispute cannot be resolved to the parties’ satisfaction, our team is well-placed to advise on pursuing the matter through the judicial system. At CMS, we have experience litigating a wide range of (direct and indirect) tax matters at all levels from the tax tribunals to the Supreme Court. Where applicable, we can work alongside any existing tax advisers or accountants to ensure that suitable preparations are made for litigation while discussions with HMRC continue.

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The author thanks Josh Avis, Trainee Solicitor, for his assistance with the above article.