The Special Commissioner in the case of HMRC v Mercury Tax Group Ltd1 considered (obiter) the penalty to be applied to a taxpayer for a failure to notify a tax avoidance scheme under Part 7 of the Finance Act 2004. He considered that it would be inappropriate to penalise the taxpayer where they had already incurred expenditure on advice from counsel and then relied upon that opinion in determining that there was no obligation to notify. Although not addressed in the case, similar reasoning should apply where advice is obtained from other appropriately qualified professional advisers.


Mercury Tax Group Limited ("Mercury") entered into a tax arrangement designed to generate a tax loss. Mercury obtained an opinion from counsel to the effect that the arrangement was not notifiable under s308 Finance Act 2004 and the relevant disclosure regulations (which have since been superseded).

HMRC brought an action alleging that Mercury was a promoter of a tax avoidance scheme and had failed to notify that scheme in accordance with s308 Finance Act 2004. Under ss98C and 100C of the Taxes Management Act 1970, Mercury was potentially liable for a penalty of up to £5,000 for a failure to notify. The amount of any penalty was within the Special Commissioner's discretion.

It was common ground that, if the tax arrangements fell within a description prescribed in the disclosure regulations, Mercury would be a promoter under a duty to notify the arrangements.


The Special Commissioner decided that the arrangements did not fall within the disclosure regulations, so that Mercury was under no duty to notify HMRC.

However, he also went on to consider the penalty that should be imposed on Mercury if he was wrong about the first point and the arrangements were in fact notifiable:

"The fact that Mercury took counsel's opinion is clearly relevant…. Although [counsel for HMRC] contends that the opinion is short on analysis, the more important point is that Mercury went to the trouble and expense of taking counsel's opinion…. Other than to take advice there is nothing else they could do; they could hardly ask HMRC whether they agreed without disclosing the scheme in the process. In my view Mercury acted properly in relying on counsel's opinion and arguing the case as a matter of principle rather than taking a view themselves and paying the penalty if they were found to be wrong, which I suspect would have been cheaper."

The Special Commissioner therefore stated that, if the scheme had been notifiable and a penalty due, he would have fixed the amount of the penalty at nil.