Having successfully overturned penalties issued against them in R, A and M Gardiner v HMRC2 the taxpayers have successfully applied for their costs against HMRC, pursuant to Rule 10(1)(b)  of the Tribunal Rules, on the basis that HMRC had acted “unreasonably in bringing, defending or conducting” those proceedings.3


The three appellants were husband, wife and son. They participated in tax planning arrangements and following the hearing of a test case4, they accepted that the planning did not achieve the intended fiscal consequences and paid the additional tax claimed by HMRC. This was not sufficient for HMRC, who alleged that the appellants had negligently delivered incorrect returns and issued penalties against the appellants accordingly. The appellants’ appeals against the penalties were allowed by the First-tier Tribunal (FTT).

By way of summary, the FTT concluded in the substantive appeal that:

  • HMRC had failed to fully particularise its allegations of negligence in support of the penalties it had imposed
  • the negligence which HMRC did particularise was that the appellants ought to have realised that the tax avoidance scheme they had participated in had not been properly implemented.
  • HMRC had failed to adduce evidence in support of that allegation of negligence and had failed to establish a prima facie case of negligence.

Decision of the FTT

In granting the application for costs, the FTT said that HMRC had failed to produce evidence of its assertion that the appellants had been negligent in relation to the tax planning arrangements they had participated in. It was clear from the appellants’ notice of appeal that they had put HMRC to strict proof of negligence and HMRC therefore had to adduce evidence if it wished to establish negligence on the part of the appellants. Without adducing such evidence, there was no prospect that HMRC would succeed at the original appeal hearing. In the opinion of the FTT, it was unreasonable conduct on the part of HMRC to defend the appellants’ appeals without producing evidence to establish negligence on the part of the appellants. Accordingly, the FTT concluded that HMRC should pay the appellants’ costs.


HMRC is often very quick to allege that taxpayers have negligently delivered an incorrect  return and impose penalties, especially where taxpayers have participated in tax planning arrangements. The FTT has made it very clear that in such circumstances, HMRC must not only particularise its allegations of negligence - it is not sufficient to simply make a general assertion – it must also adduce sufficient evidence in support of that allegation. Failure to do so will not only lead to the taxpayer’s appeal against the imposition of penalties succeeding, it is also likely to lead to an adverse costs order against HMRC.

The decision can be found here.