Delphi Derivatives Limited v The Commissioners for HMRC

For a careless inaccuracy penalty under Schedule 24 to the Finance Act 2007, the statutory phrase “due to” requires a causal link between the taxpayer’s failure to take reasonable care and the inaccuracy. It does not impose a broader attribution or general mode-of-behaviour test.

A taxpayer is not careless merely because its legally reasonable view later proves mistaken. Deliberate inaccuracy requires intentional inaccuracy, ordinarily an intention to mislead HMRC as to the truth of the relevant statement. Conduct affecting corporation tax deductions does not establish deliberate inaccuracy in PAYE returns unless it bears on the correctness of those returns.

Delphi used an employee benefit trust scheme involving contributions routed through a service provider and allocations to sub-trusts from which loans were made to directors. It omitted PAYE and NICs from P35 returns for 2008–09 and 2009–10.

The First-tier Tribunal dismissed Delphi’s appeals against a careless inaccuracy penalty for the first year and a deliberate inaccuracy penalty for the second. The appeal concerned whether the FTT applied the correct causation test, whether agency principles and the statutory defence were correctly applied, whether the final-year inaccuracy was deliberate, and whether the FTT hearing was unfair.

1. Carelessness and causation. The FTT was entitled to find that Delphi had failed to take reasonable care by proceeding despite advice identifying substantial tax risks. Grounds 1 and 7 were therefore dismissed. However, the FTT erred in treating “due to” in paragraph 3(1) of Schedule 24 as an attribution or general mode-of-behaviour test. Following Mainpay Ltd v HMRC [2025] EWCA Civ 1290, the phrase requires that the inaccuracy was caused by the carelessness. The FTT’s reliance on the absence of the definite article in paragraph 18(3) was also misplaced.
2. On remaking the decision, the Tribunal found that the P35 inaccuracies resulted from a reasonable, though ultimately mistaken, understanding supported by contemporary decisions that EBT payments and loans were not subject to PAYE and NICs. Delphi’s earlier carelessness in proceeding without further advice was not the cause of the inaccuracies. The 2008–09 penalty was set aside.
3. Agency. Paragraph 18(1) provides an additional basis of liability where an agent causes a careless inaccuracy. It does not prevent liability where the taxpayer’s own conduct caused the inaccuracy. Delphi also failed to establish the paragraph 18(3) defence: taking care to establish the scheme’s legality did not prove reasonable care to ensure complete and accurate P35 returns. Grounds 5 and 6 were dismissed.
4. Deliberate inaccuracy. The relevant question was whether the P35 return itself was intentionally inaccurate, not whether the arrangements were irregular or designed to enhance a corporation tax deduction. The FTT’s findings that Delphi instructed an increased payment and used loan-back arrangements did not establish that Delphi knew the PAYE treatment was wrong or intended to mislead HMRC. The 2009–10 deliberate penalty was set aside.
5. Fairness. The FTT’s questioning was interventionist but did not descend into the arena or deprive Delphi of a fair hearing. Ground 9 was dismissed. Grounds 2–4 and 8(a)–(b) were allowed; Grounds 1, 5–7 and 9 were dismissed.

• First-tier Tribunal (Tax Chamber): by a decision dated 18 August 2023, dismissed Delphi’s appeals against the penalties.
• Upper Tribunal (Tax and Chancery Chamber): allowed the appeal on causation and deliberate inaccuracy, remade the decision, and set aside both penalties; dismissed the remaining grounds.