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HMRC internal manual

Compliance Handbook

Penalties for Inaccuracies: Other penalty issues: Agency - Agent acting - Relationships

You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.

The terms ‘agent’ or ‘someone acting on a person’s behalf’ is not limited to, say, a ‘tax accountant’. But even when someone is acting on behalf of another person it is important to focus on the behaviour of the person

  • whose return or document is inaccurate, or
  • whose liability has been under-assessed.

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An employee, whether of a company (an ‘ordinary’ employee who is not an officer of that company), partnership or individual, is generally a servant and not an agent.

But where an employer has made an inaccurate return as a result of the action or inaction of an employee

  • if the employer has not taken reasonable care to set up systems and procedures, and to supervise and manage the employee so as to avoid inaccuracy, a penalty will be chargeable on the employer. The employer cannot simply say ‘It was my employee’s fault, not mine’. If a prudent and reasonable employer taking reasonable care would have prevented the inaccuracy then this employer has been careless.
  • if even a prudent and reasonable employer taking reasonable care would not have spotted the inaccuracy by the employee, such as some well-disguised internal fraud, then the employer has not been careless.

If a company has its own ‘in-house’ tax department, staffed by its employees, then the relationship between a company and, say its tax manager, an employee, is that described above. The officers of the company must take all reasonable measures to supervise and check the work of the tax manager. If they fail in that and an inaccuracy occurs the penalty will be chargeable on the company.


A company is a legal person, see CH81040, but it acts in the material world through the people who are its officers - normally its directors and company secretary (if one has been appointed).

Those people run the company, make its returns, and so on through all its legal obligations. A careless inaccuracy will be one where they have failed to take reasonable care.

It is reasonable to expect the officers on behalf of company to

  • set up systems and procedures to create and retain accurate records
  • make accurate returns
  • tell us about under-assessments, and
  • meet all other obligations in relation to the company’s tax affairs.

That is, to carry out for the company the duties in relation to tax that partners would do for partnerships and individuals would do for themselves.

Corporation tax groups

For corporation tax, a group of companies is not a person and does not make returns. Each company has to be considered individually. If say a trading company in a group has its tax returns prepared by a tax management company in the group then the latter acts as agent for the former.

VAT groups

For VAT, in a VATA94/S43 group of companies ‘any business carried on by a member of the group shall be treated as carried on by the representative member’.

In effect, the representative member company makes one return for all and is the person, see CH81040, for the purposes of the penalty legislation. It is not acting on behalf of (and so is not an agent of) the other group companies.