A new way of charging penalties for incorrect
tax returns is designed to encourage
taxpayers to take care with their tax affairs
and comply with all their obligations.
HM Revenue & Customs (HMRC) can
impose a financial penalty if an error in a
tax return or other tax document results
in you paying less tax than you should or
means you pay the tax in a later period.
What is new is that taxpayers will no
longer be liable to a financial penalty if
they have taken ‘reasonable care’ to get
their tax right, but have nevertheless made
a mistake.
The penalties apply to errors in income
tax, capital gains tax, corporation tax, VAT,
PAYE, national insurance contributions
and construction industry returns. The
new rules cover periods starting after 31
March 2008, where the return is due to be
filed after 31 March 2009.
HMRC calculates the level of penalty as a
percentage of the potential lost revenue and
this will be based on taxpayer behaviour:
up to 30% for failing to take reasonable
care; 20–70% for a deliberate error where
no active steps have been taken to conceal
it; and 30–100% for a deliberate and
concealed error. Disclosing errors early,
completely and voluntarily will place the
penalty at the lower end of the range.
What counts as ‘reasonable care’ depends
largely on the circumstances and the
taxpayer’s abilities. HMRC expects a higher
degree of care to be taken over complex
matters, including finding out about the
correct tax treatment. No penalty will be
charged if a taxpayer takes an arguable
view of a situation that is eventually not
upheld. HMRC would also not impose
a penalty if good accounting systems
are in place but processing errors occur,
provided the errors are relatively small
compared with the overall tax liability.
Simply leaving everything to your adviser is
not enough. Taxpayers taking reasonable
care must make sure they give their adviser
all the necessary information, implement
any professional advice received and check
the adviser’s work to the best of their ability.
HMRC recognises that an ordinary person
cannot be expected to challenge specialist
professional advice on a complex legal
point, but they ought, for example, to be
able to recognise the complete absence of a
major transaction.
Taxpayers also have a duty to choose an
adviser who is competent for the task. Please
get in touch for advice on how you can ensure
you give us all the required information.
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