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HMRC internal manual

Oil Taxation Manual

PRT: penalties - what is meant by fraudulently or negligently

The matters within OTA75\SCH2\PARA8 are here referred to generally as “errors”. The provisions of OTA75\SCH2\PARA8 apply only to errors which are made fraudulently or negligently. The test of negligence is the same as is applied in tax matters generally, that is a test of “reasonable care”. In the context of a company, Baron Alderson in Blyth v Birmingham Waterworks Co (1856) 11 Ex 781, said that errors which a reasonable person, acting properly, would not have made, are negligent. What is reasonable conduct must always depend upon the circumstances of the case, and this test is to be applied in context: oil companies are sophisticated in tax, not ignorant persons, and this sets the level of expectation of knowledge. A company acts through its authorised servants, and negligence by them is negligence by the company. In this context, “servant” would include an employee or an agent of the company: for example, if a company authorised an agent to make returns on its behalf, the company would be acting through that agent.

Cases of innocent error may occur, i.e. where there has been no negligence, but HMRC’s view is that once an error has been demonstrated, the onus is on the company to show that the error is entirely innocent. An error which at first sight appeared innocent would not be so if:

  • the company had failed to set up reasonable procedures for checking, or
  • reasonable procedures for checking were in place but had not been followed, or
  • the same error was repeated again and again over time, including after it had been drawn to the company’s attention.

Errors may be discovered by the company or by the inspector. Where an error, which was made neither fraudulently nor negligently, is discovered by the company, it must be remedied without unreasonable delay, or it is treated as negligently made by OTA75\SCH2\PARA9(1). Where such an error was made by the responsible person for a field, and it is discovered by a subsequent responsible person, then unless the error is remedied without unreasonable delay, the person who discovered the error is treated as having made it negligently OTA75\SCH2\PARA9(2)..