HMRC's hard line on tax return errors
HMRC and their increasingly hard line on tax return errors
A recent freedom of information request by RSM showed a six-fold increase in tax penalties for 2015/16 compared with 2012/13.
Tax penalties are charged according to the type of taxpayer behaviour that leads to an inaccuracy and on whether the tax adjustment is volunteered freely or arises as a result of an HMRC challenge.
There are four categories of behaviour:
- Of least concern is "mistake" despite taking reasonable care. Next is
- "failure to take reasonable care" (or "careless"), moving up to
- "deliberate" and finally to the most serious - an inaccuracy which is
- "deliberate with concealment".
Put simply, the more serious the behaviour, the higher the penalty.
As well as bigger penalties, any mistake which is classed as arising from "deliberate" rather than "careless" behaviour mean HMRC can potentially open up 20 years for assessment instead of just 6. That means, in cases where there are repeated inaccuracies over several years, a claim by HMRC of "deliberate" behaviour could have a material impact on the level of extra tax due, not just on the penalty amount.
I pay someone to do my tax return - so whose problem is it?
HMRC are clear in their guidance for agents - people who prepare and file for you (like Whitehill) - that
"When you are acting on behalf of a client, they still retain responsibility for their returns, calculations and payments.
Your authorisation as an agent allows HMRC to deal with you on your client’s behalf, but any liability for penalties for late returns, late payments or any errors on paperwork legally remains with your client."
In other words, even if someone completes your tax return for you, the responsibility for its accuracy rests with you....
I made a mistake - what should I do?
Tell HMRC, or ask us to do so on your behalf. HMRC can reduce the penalty if you help them to put things right.
Do you have questions or concerns?
Contact us - we'll do our best to help.
What is "reasonable care"?
Every individual or business is expected to keep records that allow them to provide a complete and accurate return. HMRC also expects them to check with their agent, or HMRC, to confirm the correct position, if they are not sure.
However, ‘reasonable care’ is different according to each client’s circumstances and abilities. For example, a client with relatively straightforward tax affairs may only need a simple system of record keeping that is regularly updated. A large business with complex tax affairs is expected to have a more sophisticated system that is well-managed.