HMRC has stepped up their hunt for extra revenue by increasing the number of penalties imposed on taxpayers for ‘deliberate’ errors on tax returns by 46% in the last 12 months up to 6,125 in 2017/18 from 4,138 in 2017/18.
The dramatic increase in errors deemed to be ‘deliberate’ allows HMRC to charge taxpayers much higher penalties. HMRC accuses taxpayers of ‘deliberate’ behaviour when it thinks an error on a tax return was not an accident, or the taxpayer knew of an error and chose not to correct it.
The penalties for ‘deliberate’ or ‘deliberate with concealment’ errors range from 20-100% of the potential lost tax revenue, whereas ‘failure to take reasonable care’ errors can only receive a maximum penalty of 30%.
The increase in the number of ‘deliberate’ penalties imposed has risen for a number of years now, coinciding with a fall in the number of penalties imposed for ‘careless’ errors.
Individuals who are told by HMRC that they face a fine for making a ‘deliberate’ error should check this with their accountant. The line between ‘deliberate’ and ‘accidental’ mistakes is quite blurred and there may be a chance your accountant can have your mistake reallocated to a category with a smaller fine.
After applying a penalty to a taxpayer, HMRC is allowed to track the same taxpayers for years to come, allowing for potentially even more revenue to be collected in the future.
However, HMRC is not just targeting individuals in its drive for more revenue. It is now increasingly targeting businesses, especially SMEs. It believes that 22% of SMEs are filing incorrect tax returns, all of which are potentially facing tax investigations, which can be lengthy and costly.