Chapter 15 - Penalties for Incorrect Returns

Question 1

When Penalties Apply

Answer 1

Penalties apply if a return or claim contains either:
- a careless inaccuracy, or
- a deliberate inaccuracy
Which leads to:
1) understatement of tax; or
2) false or inflated statement of a loss; or
3) a false or inflated claim to a repayment

Question 2

Careless Action

Answer 2

Failure to take reasonable care

Question 3

Deliberate But Not Concealed

Answer 3

Inaccuracy is deliberate but the taxpayer didn’t make arrangements to hide it

Question 4

Deliberate and Concealed

Answer 4

Inaccuracy is deliberate and taxpayer made arrangements to hide it

Question 5

Amount of the Penalty

Answer 5

Percentage of potential lost revenue. Depends whether careless, deliberate but not concealed, deliberate and concealed or an error in HMRC assessment

Question 6

Careless Action Penalties

Answer 6

30% penalty, reduced to:
0% for unprompted disclosure
15% for prompted disclosure
Can be suspended for up to 2 years

Question 7

Deliberate But Not Concealed Penalties

Answer 7

70% penalty, reduced to:
20% for unprompted disclosure
35% for prompted disclosure

Question 8

Deliberate and Concealed Penalties

Answer 8

100% penalty, reduced to:
30% for unprompted disclosure
50% for prompted disclosure

Question 9

Error in HMRC Assessment Penalties

Answer 9

30% penalty, reduced to:
0% for unprompted disclosure
15% for prompted disclosure

Question 10

Correcting the Error

Answer 10

If trader discovers an error, disclose immediately with a VAT 652 or by letter to the local VAT office.

Certain small errors, those made despite taking reasonable care or for careless actions, may be corrected by adjusting the next VAT return. The small error cannot exceed the greater of:

• £10,000 or
• 1% of turnover (subject to upper limit of £50,000)

Question 11

Collection of the Penalty

Answer 11

Collected by assessment, usually made within 12 months of the date of the inaccuracy

Question 12

Appeals

Answer 12

Taxpayer can appeal against:
- penalty
- the amount
- a HMRC decision not to suspend it; or
- the terms of suspension
Appeal is at first tier tax tribunal

Question 13

Other Points

Answer 13

Taxpayer not liable for agent’s actions where reasonable care was taken to avoid failure or inaccuracy

If return is wrong because a 3rd party deliberately gave false info or withheld info from taxpayer, a penalty can be charged on the 3rd party

It’s possible to collect a corporate penalty from an officer of the company for a deliberate understatement if it was attributable to that officer’s actions

There’s a double jeopardy rule preventing a penalty being charged in respect of an inaccuracy or failure where there has already been a criminal conviction

Question 14

Note

Answer 14

Leg useful - Sch 24 FA 2007