Failure to pay tax had not been deliberate

The taxpayers were directors of an umbrella company providing employees to various clients. After an enquiry HMRC issued determinations to the company on the grounds that it had underpaid PAYE and National Insurance on sums paid to its employees by including incorrect expenses in its returns. It also imposed penalties of £10m in penalties for inaccuracy on the basis that the failures involved deliberate behaviour. The company went into liquidation and HMRC issued personal liability notices on the taxpayers for £5m each.

The taxpayers appealed.

In a lengthy decision the First-tier Tribunal found that there were inaccuracies in the employer returns that led to an underpayment of tax. However the tribunal considered that HMRC had neither established that the company knew about the inaccuracies nor that it had ignored concerns around the reporting of expenses. The ‘overall picture’ was one where the company should not have had confidence...