In a recent tax case the First Tier Tribunal agreed with HMRC that the capital loss claim in Simon Fry’s tax return was due to his carelessness and should be subject to a penalty, but given that the unused portion of the claimed loss would be used the tribunal agreed that the penalty should be calculated on the used portion of the loss only and recalculated. As a result, the penalty was reduced by £158,000 to £5,183.
Fry loaned £10m to a Chelsea gym venture called KX Gym Ltd and a year later his loan was converted into shares in KXDNA Ltd. In the process he made a tax relief claim in his 2009-10 return for just over £10m, arguing that the loan was irrecoverable.
HMRC opened an enquiry into the tax return and withdrew Fry’s claim to relief and issued a penalty due to a “careless inaccuracy”.
Fry accepted that he had carried out an inaccuracy as he had incorrectly claimed capital loss relief but argued that he had filled the return correctly so therefore no penalty was due.
He called the penalty excessive as:
- the amount was disproportionate to his carelessness;
- special reduction should have been given; and
- the penalty had been miscalculated
This is an interesting case as effectively the HMRC penalty has been reduced to reflect only the proportion of additional tax that became due as a result of the error. In this case the fact that the taxpayer has since left the company and is unlikely to be claim the additional losses (that had been carried forward) was taken into account by the tribunal.
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