MISTAKES ON HMRC RETURNS THAT CAUSE PENALTIES AND SLEEPLESS NIGHTS

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ERRORS IN RETURNS

THE EFFECT OF ERRORS AND PENALTIES ON TAXPAYERS

When errors are made in returns sent to HMRC, They have powers to issue the penalty to taxpayers.

This blog explains some of the errors, how to correct them with their deadlines of correction and penalties.

ERRORS IN RETURNS

CONDITIONS TO BE SATISFIED FOR PENALTIES TO BE IMPOSED FOR INCORRECT RETURNS AND DOCUMENTATION.

HMRC can charge a taxpayer penalty when the following occurs:

A: The document submitted to HMRC contains an inaccuracy that could lead to paying less tax.

For example, if a taxpayer while filling his return declared lower income. The consequence of this is that he would either be lower tax or be able to claim a higher tax credit from HMRC.

In the same way, by falsifying or inflating the expenses, the taxpayer would either pay no tax or lower tax or claim repayment.

B: When a taxpayer submits a return, HMRC expects that it’s done competently.

Therefore any inaccuracy that is done carelessly, deliberate or deliberate and concealed would attract a penalty.

WHEN TO CORRECT ERRORS ON RETURN.

When a taxpayer submits their tax return let say for tax year 2017/18. The return is due as at Jan 31st, 2019.

The taxpayer could submit an amended return up to 12 months after the deadline for the tax year. (In these case of this example by 31st of Jan 2020.)

However, if the HMRC finds out about this mistake before the taxpayer, the return could only be amended by the tax inspector.

PENALTIES FOR THE ERROR ON THE RETURN.

The behavior of the taxpayer’s matters when the HMRC investigates a tax return

Basically the more you cooperate and help them in their investigation would go a long way to reduce your penalties.

These penalties could range from 0% to 100% of the unpaid tax.

That is let say, the unpaid tax is £100 if the penalty is 100%, and the taxpayer would pay a total of £200 to HMRC.

Different penalties

  • If HMRC could prove that a taxpayer applied reasonable care – no penalty;
  • If a taxpayer behaved carelessly – 0% and 30%; (Depending on how the taxpayer helps HMRC with their investigation).
  • If the HMRC was the first to notice the mistake and prompted the taxpayer, the taxpayer would still have to receive a penalty of at least 15%.
  • When taxpayer deliberately makes misstatement on the returns the penalty ranges from 20%-70% If HMRC found this misstatement and prompted the taxpayer, a minimum of 35% penalty is applied.
  • When a taxpayer deliberately makes misconception and then conceals it, HMRC could apply from 30-1005%, they would apply at least 70 % penalty if they found the misstatement themselves.

Tax advise if an error has occurred on Return

  • A taxpayer can amend the errors if within the time limit stated above.
  • They should be the one prompting HMRC on the mistakes, this reduces the penalties.
  • The taxpayer, if prompted by HMRC should behave well by cooperating with HMRC in order for the situation to be resolved.
  • The taxpayer can make a payment arrangement with HMRC to ensure that the matter is resolved.

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