Penalty for Inaccuracies Rules

The Penalty for Inaccuracies rules apply to value added tax irregularities in returns or documents with a filing date on or after 1st April 2009 where the return covers a tax period beginning on or after 1st April 2008.

For indirect tax irregularities other than VAT these rules apply to returns and documents for a tax period beginning on or after 1st April 2009 that are due to be sent to HMRC on or after 1st April 2010.

A taxpayer may be charged a Penalty for Inaccuracy if they give HMRC an inaccurate document which leads to:-

  • An understatement of the person’s liability to tax
  • A false or inflated statement of a loss by the person
  • A false or inflated claim to repayment of tax

 

And the inaccuracy was:-

  • Careless
  • Deliberate
  • Deliberate and concealed

 

Penalties for careless inaccuracies may also be charged where appropriate.

A penalty for a deliberate inaccuracy will normally apply where you purposefully:-

  • Understate the tax you owe
  • Choose to misrepresent your liability
  • Overstate a claim

 

A penalty for a deliberate and concealed inaccuracy will apply where you actively take steps to cover up a deliberate error.

ALWAYS GET REPRESENTATION FROM DAY ONE PRIOR TO CONTACTING HMRC.

 

The maximum and minimum penalty for each inaccuracy depends on the behaviour that caused it:-

  • Inaccuracy despite taking reasonable care:               NO PENALTY
  • Careless inaccuracy:                                                  between 15% and 30%
  • Deliberate inaccuracy:                                               between 35% and 70%
  • Deliberate and concealed inaccuracy:                       between 50% and 100%

 

The figures are percentages of the tax lost.

It is the taxpayer’s decision as to whether they co-operate with any HMRC check. However, you must remember that if you do you should be truthful as making false statements may render you liable for prosecution.

If you do choose to co-operate and disclose details then you may significantly reduce the amount of any penalties due.

At the end of any HMRC check, they will take into account the extent of your co-operation.

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