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HM Revenue & Customs (HMRC) have introduced one system of penalties across almost all taxes if your return or other tax document is inaccurate and as a result you do not pay enough tax. Under the new system penalties will depend on the amount of tax underdeclared and the reason for the inaccuracy. As long as you take ‘reasonable care’ to get things right you will not be charged a penalty, but the more serious the reason for the inaccuracy the higher the penalty can be.
The following questions and answers provide a basic guide to the topic, however if you would like more detailed information or advice on how the new penalty regime may affect you please speak to your usual Hazlewoods contact or e-mail tax@hazlewoods.co.uk.
When does it apply?
The new penalty system applies to documents with:
return periods from 1 April 2008 where the documents are due to be filed from 1 April 2009 for:
- Capital Gains Tax
- Construction Industry Scheme
- Corporation Tax
- Income Tax
- National Insurance contributions
- PAYE
return periods from 1 April 2009 where the documents are due to be filed from 1 April 2010 for:
- Environmental Taxes
- Excise Duties
- Inheritance Tax
- Insurance Premium Tax
- Stamp Duties
- VAT
How does it work?
Where additional tax is found to be due, you will have to pay the additional tax and any relating interest. Any penalty will be a percentage of the additional tax and will depend on seriousness of the reason for the inaccuracy.
HMRC will charge a penalty if you send them an incorrect document and the inaccuracy:
- is because you failed to take reasonable care – you were careless
- is deliberate – you intentionally send an incorrect document
- is deliberate and concealed – you intentionally send an incorrect document and try to conceal the inaccuracy
What is reasonable care?
‘Reasonable care’ varies according to the person, their circumstances and their abilities. But HMRC expect everyone to make and keep sufficient records for them to provide a complete and accurate return, and to update them regularly.
Some of the ways you can show you took reasonable care, and avoid a penalty include:
- keeping accurate records to make sure your tax returns are correct
- checking what the correct position is when you do not understand something
- telling HMRC promptly about any error you discover in a tax return or document after you have sent it.
When can a penalty be reduced?
HMRC can reduce a penalty if you:
- tell them about an inaccuracy, especially if this is unprompted.
- help HMRC work out the extra tax due
- give HMRC access to check your figures
The table below shows the range of penalty percentages that can be applied to an inaccuracy.
When can a penalty be suspended?
A penalty for a careless inaccuracy can be suspended for up to two years. HMRC will set conditions for you to improve your systems to stop the same mistakes happening again and if at the end of the suspension period you meet all the conditions, HMRC will cancel the penalty.Penalties charged because of deliberate inaccuracies cannot be suspended.
How can I appeal against a penalty?
You can choose to have the penalty reviewed within HMRC or you can appeal against it to an Independent Tribunal.
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