The Meaning of “Deliberate” Behaviour in HMRC Penalties & Assessments

Whether a taxpayer acted “deliberately” is the single most consequential factual issue in most HMRC investigations. It governs the 20-year extended assessment window, the highest penalty bands under Schedule 24 FA 2007, publication as a deliberate defaulter and the dividing line between civil and criminal treatment. This guide analyses the modern law on deliberate behaviour, from HMRC v Tooth [2021] UKSC 17 and Auxilium through to the fresh First-tier Tribunal decision in Outram v HMRC [2026] UKFTT 248 (TC) and sets out how advisers should run the point.

Why the Deliberate Threshold Matters

In a tax dispute, the consequences that flow from a finding of “deliberate” conduct are dramatically more severe than those flowing from “careless” conduct. The characterisation of behaviour is not a peripheral issue, it frequently determines the outcome of the entire matter. A finding of deliberate behaviour:

• Unlocks the 20-year extended assessment window under s36(1A) TMA 1970, against the six-year window for careless conduct and the four-year ordinary window;
• Triggers the highest penalty bands under Schedule 24 FA 2007, 30% to 100% of the potential lost revenue for a deliberate and concealed inaccuracy and 20% to 70% for a deliberate (but not concealed) one, against a maximum of 30% for carelessness;
• Exposes the taxpayer to publication as a deliberate defaulter under the “Publishing Details of Deliberate Defaulters” (PDDD) regime in s94 FA 2009;
• Removes the possibility of penalty suspension, which is only available for careless inaccuracies under para 14 of Schedule 24;
• May tip a matter into the criminal arena or into a Code of Practice 9 / Contractual Disclosure Facility investigation premised on suspected fraud.

Because so much turns on the point, advisers must understand precisely what HMRC has to prove and the evidential standard that applies. The good news for taxpayers is that the modern authorities have firmly established that the test is subjective and that the burden rests on HMRC.

The Statutory Framework

“Deliberate” behaviour appears in two distinct but closely related statutory contexts.

Extended Time Limits, s36 and s29(4) TMA 1970

Section 36(1A)(a) TMA 1970 permits HMRC to make a discovery assessment within 20 years of the end of the relevant tax year where a loss of tax has been “brought about deliberately” by the taxpayer (or a person acting on their behalf). Section 118(7) TMA 1970 provides that a loss of tax is brought about deliberately by a person where it is brought about as a result of a “deliberate inaccuracy” in a document given to HMRC. The interaction with s29(4), which addresses the conduct condition for a valid discovery assessment, means that the deliberate inaccuracy concept governs access to the most extended of HMRC’s assessing powers.

Penalties, Schedule 24 FA 2007

Paragraph 3 of Schedule 24 FA 2007 classifies inaccuracies in three ascending categories of culpability: “careless,” “deliberate but not concealed,” and “deliberate and concealed.” An inaccuracy is careless if it is due to a failure to take reasonable care. It is deliberate but not concealed if the inaccuracy is deliberate but the person does not make arrangements to conceal it; and deliberate and concealed if the person deliberately makes the inaccuracy and also makes arrangements to conceal it. The same vocabulary of “deliberate” conduct therefore runs through both the assessing power and the penalty regime and the authorities treat the meaning as consistent across the two.

The Subjective Test: HMRC v Tooth [2021] UKSC 17

The Supreme Court in HMRC v Tooth [2021] UKSC 17 settled the meaning of “deliberate inaccuracy.” The question the Court posed was whether the phrase means (i) a deliberate statement which happens to be inaccurate or (ii) a statement which, when made, was deliberately inaccurate. Lord Briggs and Lord Sales, giving the judgment of the Court, had “no hesitation” in preferring the second interpretation. At [42]–[43] they explained:

“Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely ‘inaccuracy’. An inaccuracy in a document is a statement which is inaccurate. Thus the required intentionality is attached both to the making of the statement and to its being inaccurate.”

The consequence is that a deliberate inaccuracy requires the maker of the statement to know it to be inaccurate or (perhaps) to be reckless rather than merely careless or mistaken as to its accuracy. A technical or structural error in a return, however large in monetary effect, is not a deliberate inaccuracy unless the taxpayer intended the statement to be inaccurate or was reckless as to its truth. Tooth also confirms that a return must be read as a whole, including any white-space narrative, before deciding whether it contains an inaccuracy at all. (We analyse the discovery and staleness dimensions of Tooth in detail in our discovery assessment staleness guide.)

Auxilium and the Working Definition

The most frequently cited working definition of deliberate inaccuracy comes from the First-tier Tribunal in Auxilium Project Management Ltd v HMRC [2016] UKFTT 249 (TC). At [63] the Tribunal held:

“In our view, a deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. This is a subjective test.”

The Auxilium formulation has been approved repeatedly and is consistent with the Supreme Court’s analysis in Tooth. Two features deserve emphasis. First, the test focuses on the taxpayer’s actual knowledge and intention, not on what a hypothetical reasonable taxpayer would have known. Second, it requires an intention that HMRC should rely on the inaccurate document, which is why a fully and accurately disclosed position, even if ultimately wrong in law, will rarely be deliberate.

Campbell: Careless Is Not Deliberate

The Upper Tribunal in Campbell v HMRC [2023] UKUT 265 (TCC) drew the line between the two thresholds in clear terms. At [115] the Tribunal observed:

“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.”

This is a vital point for practitioners. HMRC frequently asserts deliberateness by pointing to the size of an understatement, the implausibility of an explanation or the sophistication of the taxpayer. None of those features, on its own, establishes intention. A taxpayer who was disorganised, who misunderstood the law or who relied (even unreasonably) on poor advice may have been careless, but carelessness is a different and lower category that does not unlock the 20-year window or the higher penalty bands.

Blind-Eye Knowledge: CPR Commercials and Manifest Shipping

HMRC frequently argues that, even if a taxpayer did not have actual knowledge of an inaccuracy, they had “blind-eye” knowledge, a deliberate decision not to confirm a suspected truth. The Upper Tribunal endorsed this route to deliberateness in CPR Commercials Ltd v HMRC [2023] UKUT 61 (TCC), at [23]:

“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.”

The doctrine derives from Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2001] UKHL 1, in which the House of Lords analysed blind-eye knowledge in the insurance context. Two conditions must be satisfied: there must be a firmly grounded suspicion of a specific truth (not a vague or general unease), and there must be a conscious decision to refrain from taking the obvious step of confirming the position. Negligent failure to make inquiries that a reasonable person would have made is not enough; blind-eye knowledge requires a deliberate choice not to look.

Outram v HMRC [2026] UKFTT 248 (TC): Deliberate Behaviour and Tax Schemes

The recent decision in Outram v HMRC [2026] UKFTT 248 (TC) is an instructive modern application of the whole body of law and a useful precedent for taxpayers. The case concerned two brothers who had participated in “Pendulum” arrangements marketed by the Montpelier group, contracts for difference designed to generate trading losses. The arrangements were conceded to be ineffective. HMRC issued discovery assessments for 2005–06, raised nine years after the end of the tax year and could only sustain them by establishing that the taxpayers had deliberately brought about a loss of tax under s36(1A)(a) TMA 1970.

HMRC’s Case and the Taxpayers’ Answer

HMRC contended that the brothers knew or at least suspected with blind-eye knowledge, that they were not entitled to the losses, pointing to their failure to implement the loan arrangements and their tax-advantage purpose. The taxpayers replied that they had acted honestly, relied on professional advice from Montpelier and their accountants Barnes Roffe LLP, believed the arrangements legitimate and had a genuine (if optimistic) expectation of profit.

The Tribunal’s Approach and Decision

The First-tier Tribunal allowed the appeals, holding that HMRC had not proved deliberate conduct. The decision is notable for several reasons that matter to practitioners:

• Deliberateness is subjective and depends on actual state of mind. The Tribunal applied Tooth, Auxilium [63] and Campbell [115], confirming that it is not enough that a reasonable taxpayer would have acted differently. The question is the taxpayer’s actual state of mind at the time the return was submitted.
• Oral evidence of state of mind is central. The Upper Tribunal had earlier remitted the case precisely because deliberateness could not be assessed without hearing the taxpayers give evidence and be cross-examined. A finding of a dishonest or reckless state of mind generally cannot be made on the documents alone.
• Blind-eye knowledge must be pleaded and proved. HMRC’s blind-eye argument was treated with caution; a firmly grounded suspicion and a conscious refusal to inquire must be established, not merely asserted.
• Reliance on professional advice is powerful evidence of honest belief. The involvement of a promoter, references to counsel’s opinion and the use of a professional firm to prepare the returns supported the taxpayers’ account that they believed the losses were properly claimable.

Burden and Standard of Proof

The burden of proving deliberate behaviour rests squarely on HMRC, and the standard is the ordinary civil standard, the balance of probabilities. There is no heightened standard for allegations tantamount to dishonesty, but the inherent improbability of deliberate wrongdoing is part of the overall assessment of whether the balance is met. The allocation of the burden is important: a taxpayer does not have to prove that they were merely careless; HMRC must positively prove that they were deliberate and if the evidence is in equipoise the assessment or higher penalty band fails.

Where the deliberate allegation arises within a penalty appeal that also puts the underlying tax liability in issue, the position on burden is more nuanced following the Court of Appeal’s decision in HMRC v Sintra Global [2025] EWCA Civ 1661. We analyse that interaction in our companion guide on the burden of proof in HMRC penalty appeals.

Running the Argument: Practitioner Strategy

Insist on Particularisation

Require HMRC to identify the precise inaccuracy, the precise act or omission said to be deliberate and the evidence relied on to prove intention. Generalised assertions of “deliberate behaviour” should be met with a request for particulars. This both clarifies the case to be met and frequently exposes the absence of any direct evidence of intent.

Build the Contemporaneous Record

The taxpayer’s state of mind at the time the document was submitted is the central question. Gather contemporaneous evidence: instructions to and advice from accountants and promoters, scheme documentation, counsel’s opinions and any correspondence showing the taxpayer’s understanding. Reliance on professional advice, even where that advice turns out to be wrong, is strong evidence of an honest belief that the return was accurate.

Prepare for Oral Evidence

As Outram confirms, deliberateness usually cannot be decided on the papers. The taxpayer’s own oral evidence, tested in cross-examination, is generally decisive. Witness statements should address what the taxpayer actually understood, what they were told and why they believed the return was correct. Credible, consistent oral evidence of honest belief is the most effective answer to a deliberate allegation.

Attack the Blind-Eye Case Specifically

Where HMRC pleads blind-eye knowledge, hold it to the Manifest Shipping conditions: a firmly grounded suspicion of a specific truth and a conscious decision not to confirm it. A taxpayer who had no specific suspicion or who reasonably assumed their adviser had addressed the issue, has not shut their eyes. Note too that blind-eye knowledge must be properly pleaded; HMRC cannot spring it for the first time in submissions.

Distinguish Careless From Deliberate

Where some fault is unavoidable, position the conduct as careless rather than deliberate. Carelessness caps the assessment window at six years and the penalty at 30%, permits suspension and avoids publication as a deliberate defaulter. The Campbell distinction, that careless, mistaken or even stupid conduct is not deliberate, is the foundation of this fallback position.

Worked Example: A Late-Disclosed Cash Business

Consider a sole trader (“Client B”) running a cash-intensive takeaway whose returns understated turnover across several years. HMRC opens an enquiry, raises assessments for the four open years and additional discovery assessments going back fifteen years, asserting deliberate behaviour to access the 20-year window and applying a 60% deliberate penalty.

• Step 1, Identify the conduct alleged. Require HMRC to specify what was deliberate: was it the suppression of specific till records or a more general failure to keep adequate books? The former points to deliberate conduct; the latter may be carelessness.
• Step 2, Examine the record-keeping. If Client B kept genuine but inadequate records and gave them to a bookkeeper who prepared the returns, the inaccuracy may be careless rather than deliberate, particularly if there is no evidence of records being hidden or falsified.
• Step 3, Test the blind-eye case. If HMRC argues blind-eye knowledge, ask what specific suspicion Client B is said to have had and what obvious inquiry they consciously declined to make. Vague “he must have known the takings were higher” assertions do not meet the Manifest Shipping threshold.
• Step 4, Confine the time limits. If deliberate behaviour is not established, the 20-year window falls away. The six-year careless window then limits HMRC’s reach and the older years drop out entirely, often a far larger benefit than the penalty reduction.
• Step 5, Reposition the penalty. A re-characterisation from deliberate to careless reduces the penalty band from up to 70% to a maximum of 30%, opens the door to suspension and removes the risk of publication under the PDDD regime.

Practitioner Checklist

1. Identify which statutory provision is in play , s36(1A) extended time limit, Schedule 24 penalty band or both and confirm HMRC bears the burden in each.
2. Demand particulars of the precise inaccuracy, the act or omission said to be deliberate and the evidence of intention relied upon.
3. Apply the subjective test from Tooth and Auxilium [63]: did the taxpayer know the document was inaccurate and intend HMRC to rely on it?
4. Separate careless from deliberate using Campbell [115]: careless, mistaken or stupid conduct is not enough.
5. Scrutinise any blind-eye case against the CPR Commercials and Manifest Shipping conditions, firmly grounded suspicion plus conscious refusal to inquire and check it was properly pleaded.
6. Assemble contemporaneous evidence of state of mind: advice received, scheme documents, instructions and correspondence demonstrating honest belief.
7. Prepare the taxpayer for oral evidence. Following Outram, deliberateness is rarely decided on the papers; credible cross-examined evidence of honest belief is decisive.
8. Quantify the limitation benefit of defeating the deliberate allegation, defeating the 20-year window is frequently worth more than any penalty reduction.
9. Address collateral consequences: penalty suspension (careless only), publication of deliberate defaulters and any criminal or COP9 dimension.

Frequently Asked Questions