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Suspending penalties for careless errors in returns and documents
Every year HM Revenue & Customs (HMRC) undertakes 'Compliance Checks' of Individual, Partnership and Company Tax Returns to ensure those taxpayers are paying the correct amount of tax and claiming the right amount of allowances and reliefs. When an error is discovered or disclosed, HMRC wants to understand how and why the error occurred so as to decide whether a financial penalty should be charged (Penalties for errors in returns or documents). In certain circumstances, HM Revenue & Customs (HMRC) can suspend penalties.
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Have HMRC's powers to suspend penalties been recently introduced?
Under new legislation introduced on 1 April 2009 and 1 April 2010, HMRC launched an updated penalty regime for inaccuracies in tax returns or other documents. The new legislation seeks to harmonise the different penalty powers that previously existed for individual taxes or duties. Included within these powers is the power to suspend penalties.
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What taxes/duties and tax periods does the new penalty regime encompass?
The new penalties apply to Income tax, Capital Gains Tax, Corporation Tax, National Insurance (Classes 1 and 4), Pay As You Earn, VAT and the Construction Industry Scheme for tax returns or other documents due to be sent to HMRC on or after 1 April 2009 (and relating to a tax period beginning on or after 1 April 2008). For all other duties, levies and taxes, the new penalties applied for tax returns or other documents due to be sent to HMRC on or after 1 April 2010 (and relating to a tax period beginning on or after 1 April 2009).
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When can HMRC suspend a penalty?
HMRC can only suspend penalties for careless errors in returns or documents. If HMRC does decide to suspend a penalty, it will set certain conditions to 'help' you avoid penalties in the future.
If any error was deliberate then HMRC cannot suspend the penalty.
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What conditions do HMRC set and for how long?
The conditions set by HMRC will take into account your circumstances and the size of your error. One condition will be that you deliver all future returns and pay all amounts due to HMRC on time. You must think carefully before agreeing any conditions set by HMRC. Specialist advice can be invaluable in this area.
Once you have agreed any conditions with HMRC, a notice of suspension will be issued.
A penalty can be suspended for up to two years.
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What if I make a further error during the suspension period?
If you make a further error in a return or document during the period of suspension then you may have to immediately pay any suspended penalty.
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What happens to the penalty at the end of the suspension period?
If HMRC agree that you have met the conditions set throughout the suspension period and have not made any further careless or deliberate errors, HMRC will cancel the penalty.
HMRC may ask to check your records and/or ask you for further information to confirm that you have complied with the conditions set.
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If HMRC decide not to suspend a penalty, can I appeal?
Yes. Your appeal may ultimately be heard before an independent tribunal. Professional advice before making an appeal can be useful. Specialist advice in presenting any case to a Tribunal is essential.
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What should I do if an error is identified?
If errors are identified in your tax affairs, you need to robustly present your arguments to demonstrate that you either took reasonable care in the preparation of your return/document or that the errors arose due to carelessness. This will help best mitigate any financial penalties. If the errors arose as a result of your deliberate conduct or deliberately with concealment then the best way to mitigate any financial penalty is to make an early, full disclosure to HMRC.
To properly present a reasonable care argument, you will need to demonstrate that although an error did occur, you have adequate systems and procedures in place to minimise the potential for such errors. Genuine mistakes do happen!
If the error arose because of carelessness, you will need to demonstrate this and refute any suggestion that you acted deliberately or deliberately with concealment. If you can, this will allow you to further argue that any penalty be suspended.
If an error arose because you either deliberately did something wrong (or failed to do something that you should have done) or, worse still, that you did something wrong and then tried to conceal it, all is not lost. You need to consider making a full (and, if possible, unprompted) disclosure to HMRC at the earliest opportunity. This will not only help mitigate any potential penalty, but also avoid your details potentially being published as a deliberate tax defaulter on HMRC's website ('Naming & Shaming' Deliberate Tax Defaulters).
If you discover an error and are not already subject to a HMRC Compliance Check then you may qualify to make a disclosure via one of HMRC's Campaigns, which typically have guaranteed beneficial penalty arrangements.
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How can OneE TDI help?
If you are contacted or challenged by HMRC, the best thing you can do is the 'right thing; the worst thing you can do is nothing. OneE TDI will help you make the right decisions.
At the core of OneE TDI is a highly experienced team specialising in all areas of tax disputes and investigations work. We offer confidential, non-judgemental advice to best defend our clients and have a proven track record in successfully managing all contentious tax matters. We provide a comprehensive service to accountancy and legal practitioners and their clients. Our advice saves our clients time and money and helps reduce their potential exposure to tax, interest and penalties.
Putting it simply, we take control and manage all issues relating to HMRC Compliance Checks so that our clients can get on with your life. What price peace of mind?
Please see the Testimonials kindly provided by our clients (or their accountants or lawyers), which confirm our levels of client service.
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How can I contact OneE TDI?
If you would like a free, no obligation discussion with us please contact either Gary Rowson or Mark Taylor on 0800 652 6156 or complete and submit the form below.
Whilst we endeavour to provide informative and accurate information, the content on this site is for general information purposes only and should not be taken to constitute tax or legal advice which must always be tailored to individual circumstances. Please contact us if you would like to discuss matters.
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HMRC Compliance Checks