HMRC Penalty Regime

Inaccuracy

The new Inaccuracy penalty regime was introduced last year and applies to returns and documents submitted after 1^st April 2009 for VAT, PAYE, NIC(Excluding Class 1A), Income tax, Corporation Tax, Construction Industry Scheme and Capital Gains Tax. This regime has been extended to virtually all other taxes with effect from 1^st April 2010 including Class 1A NIC, Stamp Duty Land Tax, Stamp Duty Reserve Tax, Lottery Duty, Landfill Tax, Betting Duties, Inheritance Tax, Insurance Premium Tax and other duties and levies.

Consideration of this penalty will apply if by reason of an inaccuracy not enough tax is paid or where an assessment issued by HMRC is too low and no disclosure is made.

Much has been made of the fact that the penalty could amount to 100% of the tax unpaid under the new regime but this really does only apply to the worst case of deliberate and concealed act where the defaulting taxpayer offers no cooperation or assistance to HMRC in putting the matter right.

My own preference is that prevention is best and to look at what can be done to achieve a 0% penalty or to take advantage of suspension of penalties where available to achieve cancellation. The basic keys to this are:

• To take reasonable care for the purpose of making returns

• To notify or disclose where an error or inaccuracy is discovered without waiting to be prompted by HMRC

• To provide assistance and access to HMRC to enable the correct position to be established

The last two items should make common sense in the sense of mitigation of a penalty, even though we may not know there will be a penalty at this stage. It is the first item that really matters – get it right and there can never be a penalty!

HMRC say that reasonable care varies according to the person, their circumstances and their abilities bringing an element of judgement into play. In the case of uncertainty reasonable care can only be established if advice has been sought from HMRC or a competent adviser and there is an example of no penalty where HMRC give inaccurate advice. They then go on to say that they expect all to make and keep sufficient records to provide a complete and accurate return.

Reasonable care therefore requires a complete set of records, balanced and reconciled with appropriate systems of internal control and check in place together with set procedures and arrangements in place to cover uncertainties and resource gaps. Anything less than this probably means a lack of reasonable care.

The Solutions

Let us help protect the business by ensuring that the business books are complete, balanced and reconciled. A brief meeting followed by a written report will outline potential problems and offer suggestions and solutions including what might be regarded as "Reasonable Care" for aspects of particular taxes. 

Our experience and expertise will guide you through the complexities.

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