Video Penalties

HMRC YouTube video explains tax return penalties

HMRC has recently released a YouTube video titled, ‘An Introduction to Penalties for Inaccuracies in Documents and Returns’. Whilst aimed at tax agents, contractors would find this equally useful.

The aim of the video is to help educate and support compliant taxpayers

Whilst HMRC do not expect perfection from those completing tax returns – phew that’s a relief! – they do want people to:

• Take care with their records and systems
• Tell HMRC about any inaccuracies without being prompted
• Help HMRC to put things right

Reasonable care

Where someone takes reasonable care when completing their tax return then no penalties will be levied where an inaccuracy is discovered. Reasonable care varies according to a taxpayer’s ability and particular circumstances and can include:

• Taking care of records and systems
• Acting on advice from a competent adviser
• Seeking advice when dealing with something new or unfamiliar

Behaviours

The penalty system is based on behaviours which determine the level of penalty. HMRC are keen to understand the behaviour that leads to an error. These behaviours fall into three categories:

Careless

This could be an inaccurate record being sent without the taxpayer taking reasonable care or failure to bring an error to HMRC’s attention upon discovery.

Deliberate

This is where a taxpayer knowingly and intentionally gives HMRC an inaccurate document or return, e.g. omitting takings.

Deliberate and concealed

This is the most serious level of evasion and refers to active steps being taken to hide an inaccuracy before or after a document is submitted to the Revenue.

Penalties

Where there is more than one inaccuracy a penalty will be charged for each inaccuracy unless they can be grouped together as one.

The manner in which HMRC discover the inaccuracy influences the penalty, i.e. whether or not a person discloses the error without being prompted. Unprompted refers to a taxpayer who has no reason to believe that HMRC has or is about to discover an error.

Reductions are also available for the quality of disclosure, be they prompted or unprompted, and are achieved by:

• Telling HMRC about the inaccuracy
• Helping HMRC quantify the inaccuracy
• Giving HMRC access to records

These however are dependent on:

• Timing of the disclosure
• Nature of the disclosure
• Extent of the quality of the disclosure

Penalties are calculated as a percentage of the potential lost revenue, ie the additional tax due, and can range from 0 – 100%. These however can be reduced as follows:

• Up to 30% for telling HMRC about the inaccuracy
• Up to 40% for helping HMRC quantify the inaccuracy
• Up to 30% for giving HMRC access to the business records

The video goes on to provide a working example of a penalty calculation.

Those wishing to enlighten themselves can watch the video below.