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HMRC enquired into the taxpayer's partnership returns for the years 2002/03 to 2007/08.
Enquiries were also opened into the corresponding personal tax returns of the three partners, one of whom was deceased.
In essence, the Revenue was concerned that takings had been suppressed.
After two years, the department amended the returns and imposed penalties on two of the partners (not the deceased) for negligent delivery of incorrect returns.
The taxpayer partnership, a Chinese takeaway, appealed.
The First-tier Tribunal found that the returns were incorrect as a result of fraud or negligence on the part of the deceased partner.
It decided HMRC’s amendments were excessive and said an adjustment should be based on alternative calculations set out by the tribunal at 40%, which the tribunal considered to be in order on the basis the inaccuracies had been deliberate and the level of co-operation by the appellant firm had been ‘extremely poor’.
The taxpayer’s appeal was allowed in part.
