Case review: J Krason

The original article was published in Taxation on 6 July 2026

The relationship between a taxpayer and their professional advisor is built on a foundation of trust. However, when that trust is misplaced, the results can be devastating. This was the central theme in the case of Jaroslaw Krason v HMRC [2026] UKFTT 675 (TC).

The case centered on whether a taxpayer should be held liable for deliberate and concealed penalties when they entered into a tax avoidance structure that did not work, based on the explicit assurances of a qualified accountant. While HMRC initially argued that Mr. Krason had acted “deliberately and with concealment,” the First-tier Tribunal cancelled £224,000 in penalties on the basis that Mr Krason took “reasonable care.”

Background

Since 2005, Mr. Krason had entrusted his tax affairs to MD, who publicised his membership of several professional bodies and his credentials as a former HMRC employee.

On the advice of MD, Mr Krason had entered into tax avoidance schemes designed by Baxendale Walker Limited, which included the use of offshore trusts and loans via a Personal Management company. MD claimed these arrangements were used by “special people,” such as MPs.

Mr. Krason, who did not understand the concept of a trust (as it does not exist in Polish law), asked several times if the scheme was legal; MD repeatedly assured him that it was.

HMRC opened a CoP9 investigation on 10 January 2018 and opened enquiries into 2016/17 and 2017/18. In December 2019, HMRC issued discovery assessments for 2011/12 to 2015/16 inclusive and in September 2020, closure notices for 2016/17 and 2017/18.

HMRC charged penalties under Sch 24, FA 2007 at 66% for deliberate and concealed behaviour. The total penalties were £224,750.

HMRC asserted that Mr Krason had acted deliberately on the basis that he “either (a) knew that the “whole thing was a paper fraud” which did not work, but participated in it regardless, or (b) had suspicions (sufficient to amount to blind eye knowledge) that it did not work.”

The basis of many of HMRC’s arguments were things that Mr Krason “should have known”, “must have realised” and also attributed the accountant’s redacting of documents to deliberate and concealed behaviour by the client.

The ensuing legal battle – strike out applications by HMRC, which were in part successful – led to the freezing of his bank accounts in Poland and forced him to sell his home and car to settle underlying tax debts. At this hearing, Mr. Krason appeared as a litigant in person, living on a pension and caring for his terminally ill mother.

HMRC applied to claim costs in relation to the first strike out hearing relating to the assessments. The judge agreed that costs should be awarded in principle and that costs should be agreed by the parties or subject to a detailed assessment. HMRC then wrote to Mr Krason advising he owed them a further £11,000. HMRC did not advise Mr Krason he could challenge that sum.

Whilst the above is not necessarily relevant to the penalty appeal, it sets the background as to Mr Krason’s (in)ability to challenge HMRC or his advisers due to his lack of expertise. It also serves as a cautionary tale to taxpayers and advisers as to how HMRC may treat taxpayers involved in tax avoidance schemes. Where a taxpayer is unrepresented, we suggest that HMRC has a moral obligation to advise them of their rights of appeal or challenge, even where that right is not statutory.

The core of the penalty dispute was whether the inaccuracies in Mr. Krason’s tax returns were “deliberate” or alternatively (per HMRC) “careless” under FA 2008, Sch 24.

HMRC’s arguments

HMRC asserted that:
“(1) The reasonable taxpayer would have obtained a written description of the scheme “to protect his position” or “to cover himself”.
(2) The reasonable taxpayer would have consulted a lawyer to check that the arrangements worked.
(3) The reasonable taxpayer would have attempted to understand the scheme generally and in particular what was meant by contributions” and how his PMC worked.
(4) The reasonable taxpayer would have checked his SA returns and realised that the “other business expenses” could not be correct.”

The Tribunal’s decision

Judge Redston noted Mr Krason was fluent in English but not a native speaker, in particular he found “complex language difficult”. She also commented that Mr Krason was an honest and credible witness.

Mr Krason convinced the court that he had not understood the documents and that he had relied on his accountant’s advice. He confirmed he had checked the arrangements were legitimate and that he had been advised that they were.

The Judge noted that Mr. Krason’s attributes—his lack of financial literacy and his language barrier—were critical. A reasonable person with Mr. Krason’s specific background, who had a seven-year history of honest dealings with a qualified professional (and former HMRC officer), would have been justified in relying on that professional’s expertise. The Tribunal concluded that while Mr. Krason’s trust was misplaced, it was not objectively unreasonable.

In respect of point 2, the FTT concluded that given Mr Krason’s reasonable reliance on his adviser, it was unreasonable of HMRC to suggest that Mr Krasn should have taken further advice.

The Tribunal ruled that there was no “intention to mislead” the Revenue, as Mr. Krason genuinely believed he was following legal professional advice.

Consequently, the appeal was allowed and all penalties were cancelled.

Takeaways

HMRC’s argument that a layperson, regardless of their command of English “must have realised” the arrangements were too good to be true is a dangerous one. Had the FTT agreed, then all taxpayers who had entered into tax avoidance arrangements would be at risk of deliberate penalties.

The judgement also demonstrates that where a taxpayer is honest and credible enough to show that he genuinely does not understand how the figures on his returns were put together, then the level to which they can ‘check’ their return is limited. These taxpayers are completely reliant on their accountants.

• Reliance on an adviser is not absolute: The ruling confirms that relying on a qualified professional can protect a taxpayer from “careless” or “deliberate” penalties, provided the reliance is reasonable given the taxpayer’s experience and attributes.
• Ensure you understand what you enter into: The case highlights the danger of signing documents without full comprehension and therefore being unable to defend your actions. While the court was sympathetic to Mr. Krason, the fact that he did not understand the documentation made it easy for HMRC to challenge him and another court may not have been as sympathetic. HMRC’s aggressive approach and the legal process still caused him financial ruin before the penalties were overturned.
• Reasonable care is determined on a case by case basis: The Tribunal’s decision emphasises that “reasonable care” is not a one-size-fits-all standard. It takes into account the individual’s education, language proficiency, and specific relationship with their advisor. In this case, it was found that trusting incorrect advice is unfortunate but not unreasonable.

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