Don’t get caught out by HMRC’s new automatic penalties.
Hands up – who missed the Self-Assessment deadline and had to pay the automatic £100 penalty?!
Well, you are definitely not the only one, it’s a nice little earner for HMRC that one!
But the penalty amounts can be far greater and for a much broader range of reasons than you may first imagine – we don’t want you to get caught out.
In 2009 HMRC was granted a host of new powers, including a much broader spectrum of reasons to impose automatic penalties. As well as missing deadlines, these include;
- Making a mistake on your Self-Assessment tax return
- A lack of record keeping or not holding on to your records
- If you don’t let HMRC know of a chargeability to tax
- Excise duty or VAT related errors
- Not filing your return online
Some of HMRC’s decisions have since been taken to tribunals and are usually upheld by the presiding judge. The following two examples involve huge amounts of money and are a stark warning that HMRC’s rules do stand up in court.
Example 1: Timothy Hutchings V HMRC.
Timothy Hutchings was given a massive £87,533 penalty for a mistake on an Inheritance Tax Return. The amount of the fine is calculated by working out 50% of the amount of tax he avoided paying. He was the beneficiary of the will and was held personally accountable as it was decided his actions were purposeful. The executors were not held liable for the fine. £443,669 was received into Timothy Hutchings account from the deceased’s offshore account 6 months before his death. As this information of a monetary ‘gift’ should have been included in the Inheritance Tax Return, a mistake was made and therefore the consequential penalty was upheld.
Example 2: Lucam Consultancy Ltd. V HMRC
This company received a penalty of £57,768 because they were charging VAT on their invoices before they were officially registered for VAT with HMRC. This went on for 9 months. The company director argued that she had applied to be VAT registered within the allotted time parameters and she had not received any communications from HMRC. The tax office said that they had attempted to get in touch with her in a variety of different ways in order to answer some questions about her application. Judge Hacking ruled that her supporting evidence was lacking, she had deliberately charged the extra VAT without being VAT registered and she had to pay the massive penalty.
In both of these cases the judges concluded that the individuals involved had acted ‘deliberately’ and they couldn’t provide evidence to the contrary. None of us want tax avoiders to get away with not paying their fair share. But now, more than ever, accuracy is of absolute importance in any dealings with HMRC – “that’ll do” has become a very risky strategy. When making an honest mistake can receive a penalty, it’s simply more cost effective to call in an expert.
