When it comes to tax matters, there is a tendency for fiscally inexperienced people to simply sign whatever documents their accountants put in front of them. That can be a risky approach but, as a First-tier Tribunal (FTT) ruling showed, there is often an entitlement to place reliance on ostensibly competent professional advice.

The case concerned three former partners in a drain maintenance firm. They had the misfortune to be advised by a small accountancy practice whose principal was subsequently found guilty of cheating the public revenue and jailed. Following the criminal investigation, HM Revenue and Customs (HMRC) formed the view that the firm had underpaid tax in the 2005/6 tax year. On that basis, back demands for substantial sums in Income Tax were raised against the partners.

In upholding their appeal against those demands, the FTT noted that HMRC’s inquiry into the firm’s tax affairs had been inordinately delayed and that memories of relevant events had inevitably faded. Despite the paucity of evidence, it found that the firm’s business was transferred to a company in which the partners held shares on or around 1 April 2005. The partnership thus had no income during the relevant tax year. Late payment penalties were also overturned.

The FTT noted that the partners placed implicit trust in the accountancy practice and, in truth, simply signed any documents put in front of them. Their expertise lay in drainage systems, and they acted wholly responsibly in placing their tax affairs in the hands of the ostensibly competent practice. They were entitled to rely on the practice for the submission of accurate financial information to HMRC and it was no fault of theirs that they had been led by the practice on what amounted to a fiscal frolic.