If HMRC spot an error on your tax return which results in an underpayment of tax (or claiming too large a refund) a penalty is likely to be charged. This happens even if it was an entirely innocent error with no deliberate intent to avoid paying the right amount of tax. A penalty charge can even apply if you rely on someone else’s advice to complete your tax return, unless you can show that it was reasonable to do so and disclosed full facts to that person.
Legislation sets out that it is the taxpayer’s responsibility to take reasonable care to a) maintain adequate records to be in a position to submit accurate tax returns, b) be aware of tax and compliance obligations and to seek professional advice if required, and c) either complete the required returns with due care and attention or seek assistance from a professional advisor if necessary.
This article outlines some of the most common reasons why a penalty would be issued and what options you as a taxpayer have to either appeal the penalty or negotiate an alternative outcome. In most cases, where the taxpayer is unable to demonstrate that they took reasonable care in completing their tax returns, the penalty charge can be up to 30% (raising to 100% if HMRC feel it was a deliberate error). (more…)