HMRC penalties for deliberate errors treble

The taxman has trebled the number of penalties he issues for ‘deliberate’ as opposed to ‘careless’ mistakes on self-assessment returns, an accountancy firm is warning.

In fact, the number of penalties imposed for ‘deliberate’ rather than ‘careless’ inaccuracies in tax returns has risen to 14,401 -- up from just 5,162 in 2012-13, says Baker Tilly.

Pointing to the figures, which HM Revenue & Customs released under freedom of information rules, the firm said it proved HMRC is “getting tougher” on incorrect returns.

More specifically, “the taxman is getting much tougher on people who are under-declaring their income in their tax returns,” says Mike Down, Baker Tilly’s head of tax investigations.

He adds: “By [HMRC] seeking more deliberate penalties, taxpayers are being hit harder, the Exchequer is benefitting from higher monetary receipts.”

Currently, HMRC may charge a penalty when a tax return or other document contains an inaccuracy, and the inaccuracy results in tax being unpaid, understated or over-claimed.

In addition, the rate of a penalty charged by HMRC has (since 2008) been based on both the percentage of Potential Lost Revenue, and the behaviour of the taxpayer.

But about 80% of penalties fall into the ‘failure to take reasonable care’ category (the others being ‘error;’ ‘deliberate understatement’ and ‘deliberate understatement with concealment’).

Mr Down says that, in certain circumstances, penalties for careless inaccuracies can be suspended, unlike those for any of the ‘deliberate’ categories, which cannot and are heavier.

His reminder comes as a tax penalty that cannot be suspended has hit a student, after he was told he is stuck with a £1,300 fine, levied for a late tax return that wasn’t his responsibility.  

The student, Jack Dyson, rightly filed his own personal self-assessment return but reportedly failed to submit a joint return with a fellow student who he’d set up a business with.

Although Dyson owed little or no tax, the automatic late-filing penalty ratcheted up and when he went to tribunal, he heard that he couldn’t fight it due to a loophole, the Daily Telegraph reported.

Specifically, Dyson was told he was not ‘nominated’ to fill out the return, and so was not permitted to appeal – despite the £1,300 penalty having been issued to him personally.

The case emerges in the same week that a penalty of £10 a day can start to ratchet up to a maximum of £900 from April 30th; for those self-assessors who have still not submitted a tax return this year.