Understanding The New HMRC Penalties
The new regime covers the following taxes:
VAT
PAYE
National Insurance Contributions.
Capital Gains Tax.
Income Tax.
Corporation Tax.
Construction Industry Scheme.
The proposal is to extend it to other taxes, levies and duties though it has been stated that it will not apply to any benefits or credits such as tax credits, nor will it apply to the national minimum wage. The general approach of the new regime is designed to be fairer, helping those who are compliant and punishing those who are not. The reason underlying an error will now be looked into and HMRC have coined the term ‘reasonable care’ as key to determining the amount of penalty charged. The definition of ‘reasonable care’ varies from person to person. A far higher standard of reasonable care will be expected of a professional (e.g. a solicitor) than the man and woman on the Clapham Omnibus.
HMRC has provided the following guidelines demonstrating reasonable care
Keeping accurate records to make sure your tax returns are correct.
Saving your records in case you need them later
Checking what the correct position is when you don’t understand something.
Telling HMRC promptly about any error you discover in a tax return or document after you’ve sent it to HMRC. For example, reasonable care is where a person who enters a transaction not encountered in their usual activity takes steps to make sure the correct treatment is realised. That could be by seeking advice or checking the treatment is correct and would be similar to the reasonable steps taken once an error is discovered. HMRC states that if reasonable care is taken to get things right and still an error occurs then there will be no penalty. In addition, once an error is discovered reasonable steps must be taken to promptly disclose it.Reasonable steps include:
Consulting with an accountant or agent to discuss the position so they can inform HMRC.
Ringing HMRC to discuss it.
Discussing it with one of HMRC’s officers if there is an ongoing compliance check.
E-mailing, faxing or writing to an HMRC office with details. The penalties under the new regime are based on the extra tax due and the rates depend upon the reason underlying the error. In addition to the penalty, interest will also be charged on the extra tax due.The four stage sliding scale of penalties apply to:
A mistake despite reasonable care.
A careless mistake.
A deliberate mistake.
A deliberate and concealed mistake.
It is clear that there is an option of reducing the potential penalty in all circumstances. What constitutes reduction in penalty includes:
Telling HMRC about any errors.
Helping HMRC work out the extra tax that is due.
Giving access to HMRC to check the figures. There is also a new system of penalty suspension under this new regime. A penalty can be suspended for up to two years provided certain conditions are met and you do not become liable to any other penalties during the suspension period. If at the end of two years the conditions are met the penalty will be cancelled. The suspension cannot be applied where the error was deliberate.Finally, as with most penalties, there is always a system in place to appeal against any penalty levied.
Article Courtesy of Stephen Brownlee @ SDB Accountancy Services
