Attribution of employee fraud

The taxpayer company discovered in 2000 that an employee HI had fraudulently taken money intended for HMRC. He was convicted of theft in July 2001.

The Revenue concluded during a 2004 employer compliance review that the business’s P35s for 1997/98 1998/99 and 1999/2000 understated tax and National Insurance (NI) due.

The department issued determinations to recover the underpaid sums. The taxpayer appealed saying HI had forged the P35s which were not the ones the managing director had signed.

The company’s adviser agreed there had been a loss of tax caused by the dishonest conduct of an employee. The behaviour could not be attributed to the business – which told HMRC about the fraud in 2000. The department failed to address the matter until four years later meaning the assessments were out of time.

The First-tier Tribunal accepted the taxpayer had not perpetrated the fraud...