Behaviour matters to HMRC just as much as your numbers
Last updated 11 Mar 2026, by Jeremy Johnson
‘Behaviour’ is a key issue that we often have to argue for clients who find themselves in disputes with HMRC.
We’ve written about this topic before (see here), and recently published a real-life case study on our work within this area.
A tax case, Anthony Outram & Anor v The Commissioners for HMRC, published in February, is a helpful reminder of some of the considerations in this area, and we think they are worth repeating.
Why does your behaviour matter to HMRC?
In many areas of tax, behaviour impacts both on how far back in time HMRC can issue an assessment, and also on the level of penalty that can be imposed.
Generally, behaviours are categorised, have their own time limits and penalties (for direct taxes) when it comes to an error in a tax return.
| Behaviour | Time limit | Penalty |
| Reasonable care | Four years | no penalty |
| Careless | Six years | up to 30 per cent of the tax |
| Deliberate | 20 years | up to 70 per cent of the tax |
| Deliberate and concealed | 20 years | up to 100 per cent of the tax |
*For some offshore matters in certain jurisdictions, the penalty rate can be above 100 per cent of the tax.
An example of how behaviour impacts tax investigations
The impact of the above can be made clear with an example.
Let’s pretend that HMRC discovered that I have made errors in my tax returns for the years ended 5 April 2015 to the year ended 5 April 2023 inclusive and these errors resulted in a loss of tax of £10,000 per year for each of those years.
If my error was made despite taking reasonable care, HMRC would be able to assess 2022 and 2023, with no penalty, so I would be liable for £20,000 of tax plus interest.
If my error was careless, HMRC would be able to assess 2020 to 2023, so I’d be liable to pay £40,000 of tax plus interest, and up to £12,000 in penalties.
If my error was deliberate, HMRC would be able to assess all years, so I would be liable for £90,000 of tax plus interest, and up to £90,000 of penalties if I had taken steps to ‘conceal’ the inaccuracies.
The range of outcomes, depending on behaviour, is wide, from £20,000 to £180,000.
It is obvious why HMRC would seek to argue careless or deliberate behaviour in many cases, and it is also clear why taxpayers may seek to disagree.
The recent Outram case reminds us that the onus is on HMRC when making allegations of more serious behaviour.
This case was, in effect, a re-trial having been heard previously in 2021 and then remitted back to the First Tier Tribunal (“FTT”) by the Upper Tribunal, the Upper Tribunal having set aside the first original FTT decision.
The central issue was whether the taxpayers had acted deliberately.
Notwithstanding the slightly convoluted route to being heard again, Outram provides some helpful reminders of cases that have come before, and the considerations.
Among others, the FTT quoted from the Upper Tribunal judgment in Campbell v HMRC:
“Put simply, in order for HMRC to discharge the burden of demonstrating that an act or omission by a taxpayer was deliberate, they will need to establish to the normal civil standard that the act or omission was intentional; the fact that an act or omission may have been careless, mistaken or stupid is not enough.”
The important part here is intent – errors can be made with no ill intent, getting something wrong in and of itself does not demonstrate that there was deliberate behaviour involved in the error.
Outram also considered the concept of ‘blind eye knowledge’.
This is where an individual believes that their tax return may be wrong and deliberately does not seek out further information or advice, for fear of confirming their suspicion that there is a problem.
The FTT quoted from CPR Commercials Ltd v HMRC on this point:
“Where a taxpayer suspects that a document contained an inaccuracy but deliberately and without good reason chooses not to confirm the true position before submitting the document to HMRC then the inaccuracy is deliberate on the part of the taxpayer… However, the suspicion must be more than merely fanciful.”
Where the boundary lies between a concrete and a fanciful suspicion may be a matter for debate, but we have seen HMRC make this type of argument, based on statements such as ‘X must have known that there may have been tax to pay…’
A bold assertion of ‘must have known’ is probably not enough, HMRC needs to show a conscious decision to avoid confirming what is strongly suspected.
Many cases we’re involved with include considerations of where boundary lies between these different behaviours, and whether HMRC discharged the burden of proof, we spend much of our time arguing this subject.
It is also often a consideration when making a disclosure to HMRC – how many years are disclosed will often depend on the behaviour (or knowledge and intent) of our client at the time.
If you have a case where HMRC is making allegations of careless or deliberate behaviour and you don’t agree, we can probably help.
You can get in touch with our friendly and experienced team on: 0203 675 8122 or email info@intaxltd.com.
inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. However, we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients.
