The new penalties regime, which will apply to tax returns and other documents submitted to HMRC after 31 March 2009, starts from the expectation that taxpayers should take reasonable care. If the taxpayer has taken reasonable care in: making the tax related decision, completing the form, or keeping records, he should not be subject to a penalty even if the result is an error. Thus if the client show that he has taken reasonable care, this will act as a ‘get out of jail free’ card.
What reasonable care amounts to is not defined in the legislation, but HMRC have said it includes:
- keeping accurate records to make sure your tax returns are correct
- 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
Penalties are as follows:
- Where the taxpayer fails to take reasonable care the penalty can be up to 30% of the potential lost revenue (generally the lost tax),
- or up to 70% where there has been a deliberate understatement of liabilities.
- Deliberate understatement and concealment (basically fraud) will attract a penalty of up to 100% of the lost tax.
