This article was written by Patrick Cannon and was originally produced for Taxation magazine.

Computer Says No

Key points

  • The taxpayer reported a loss in the white space on his tax return because of a
    software limitation.
  • The Court of Appeal ruled HMRC was unable to issue a discovery because it already knew of the tax insufficiency.
  • The taxpayer had not acted deliberately because he did not intend to mislead anyone.
  • But the inaccuracy was deliberate because the losses were reported in the wrong place.
  • Deliberate has two meanings depending on the context in which it is used.
  • For FA 2007, Sch 24 penalties, deliberate usually requires blameworthy conduct.

We have all encountered situations in which the human beings on each side of a transaction agree on a sensible course of action but the computer software involved has either not anticipated the steps used or has been written in a way that blocks a desired step. This forces the human being into using a work-around to get the computer to implement the transaction: the so-called ‘computer says no’ dilemma. This situation is arising frequently and increasingly with the filing of tax returns using software packages.

Unfortunately, the Court of Appeal in its decision in CRC v Tooth [2019] EWCA Civ 826 has, in effect, sided with the computers and against the human beings by suggesting that an honest human inspired work-around to overcome a limitation in the tax return software opens up the taxpayer to a 20-year ‘discovery’ time limit, compared with a four-year time limit had the taxpayer used a paper tax return. If this wasn’t worrying enough, the obiter remarks of the Court of Appeal judges in Tooth on the meaning of the word ‘deliberate’ in the context of discovery assessments have caused some concern that the threshold for HMRC to charge a higher penalty under FA 2007, Sch 24 for a deliberate inaccuracy has also been lowered.

This full article can be read by subscribing to Taxation magazine, you can find a direct link to the article here.

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