It’s a time of year business owners dread; the self-assessment deadline. We all know how important it is to not miss the deadline as you’ll receive a penalty, but have you considered the implications if you make a mistake on your tax return?

Mistakes are treated differently by HMRC depending on whether they believe that the mistake was accidental or deliberate.

tax return deadline

Penalties on tax returns

HMRC awards penalties for 4 reasons:

  1. Late filing penalty
  2. Late payment penalty
  3. Penalty for inaccurate returns
  4. Penalty for failure to notify

There is a ‘behaviour based’ system of penalties for inaccuracies on tax returns.

These range from 0% to 100% of the tax underpaid (or refund over claimed).

0% applies where a taxpayer has taken reasonable care, but later discovers an error and discloses this to HMRC. At the other end of the scale, 100% penalties can apply when a taxpayer deliberately makes a false return, conceals the fact, and only accepts the position following a challenge by HMRC.

See the below table:

Type of behaviour Unprompted disclosure Prompted disclosure
Reasonable careNo penaltyNo penalty
Careless0% to 30%15% to 30%
Deliberate20% to 70%35% to 70%
Deliberate and concealed30% to 100%50% to 100%

The exact whereabouts on the scale depends on the quality of the disclosure provided by the taxpayer.

Reasonable care 

There are no penalties for “innocent” tax errors. ‘Reasonable care’ means the taxpayer took reasonable care completing their tax return. This means HMRC have to consider the particular person’s abilities and circumstances.

For example, as HMRC say: “We do not expect the same level of knowledge or expertise from a self-employed un-represented individual as we do from a large multinational company. We would expect a higher degree of care to be taken over large and complex matters than simple straightforward ones.”

Careless

Company directors are expected to be able to demonstrate ‘reasonable care’ in the tax affairs. That means keeping appropriate tax records and submitting complete and factually correct tax returns.

HMRC may identify a mistake as ‘careless’ by looking at how significant the error is in the context of tax liability. Penalties range between 0 and 30% of lost revenue, but tend to be at the higher end if HRMC uncovers the mistake rather than the business declaring the mistake themselves.

Deliberate mistakes 

Again, HRMC has to prove that the mistake was deliberate. Evidence suggests that HRMC is tougher than it used to be in this matter, with over 100,000 inaccuracy penalties issues in 2022 which is considerably higher than any other year. Of these, 11,000 were due to deliberately inaccurate returns being returned.

Deliberate and concealed mistakes

Deliberate and concealed mistakes are those where HMRC finds evidence that someone has either falsified documents, or made other sorts of deliberately false representation to conceal their true tax situation. Your penalty could be up to 100% for these errors.

Errors in this category can also lead to a criminal investigation and jail time.

Contact your A4G Chartered Accountant if you’re worried about your tax return to avoid any potential penalties.

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