Agent’s errors were careless

The taxpayers ran a dental practice through a company and also owned property in their own names from which they derived rental income. In 2007 they entered into an interest rate hedging product. Seven years later after a review by the Financial Conduct Authority the taxpayers were awarded compensation. This comprised redress of £86 347 and interest of £18 509 against which tax was deducted at 20%.

In their 2013-14 tax returns the taxpayers’ agent included a disclosure in the white space stating that the redress payment of £86 347 was not considered taxable. After an enquiry in 2018 HMRC issued discovery assessments assessing the compensation to tax. This was on the basis a loss of tax was brought about carelessly by a person acting on the taxpayers’ behalf. It also imposed penalties but these were cancelled on review.

The taxpayers appealed against the discovery...