The appellant taxpayer (S), a sole trader, appealed against the decision of the First-tier Tribunal2 that the adoption by his accountant (T) of the accounting practice prevalent in the construction industry at that time was not appropriate. T had prepared the accounts on the basis that income could only be recognised when a valuation certificate was issued, as opposed to when an application for payment was made.

The commissioners issued assessments against S in reliance on the Taxes Management Act 1970 sections 29 and 36. The First-tier Tribunal agreed with the commissioners that that basis of accounting was not in accordance with generally accepted accounting policy and that the manner in which T had prepared the accounts in that respect amounted to negligent conduct.  

S’s appeal was rejected by the Upper Tribunal, which held that:  

(1) The Tribunal was entitled to reach the decision that it did based on the evidence available. It rejected the contention that the only conclusion which the Tribunal was entitled to reach was that both methods were acceptable methods of commercial accounting at the relevant dates.  

(2) The Tribunal had not made a finding concerning the professional negligence of T, or applied the wrong test for “negligent conduct”. The Tribunal had found that T was guilty of negligent conduct by applying the standards of professional negligence to determine whether there had been a breach of duty, which was a consideration explicitly required by statute where a tribunal was tasked to determine whether there had been negligent conduct by a person acting on a taxpayer’s behalf.  

The Upper Tribunal expressly stated that it did not necessarily follow from this finding that a court would later uphold a claim for professional negligence by S against T (particularly as T was not a party to these proceedings), but clearly such a finding would be damaging for an accountant seeking to defend any subsequent negligence action.