Client briefing: how to avoid penalties for carelessness when preparing your tax return?

The size of a tax-geared penalty depends on several factors:
  • The taxpayer's behaviour: was the error caused by an innocent mistake, was it attributable to careless behaviour or was it deliberate?
  • Who spots the problem and how it is disclosed.

Following rumours that over-zealous inspectors at HMRC are now categorising all mistakes in the range of "careless to deliberate", this briefing is designed to give taxpayers the heads up in avoiding a higher penalty charge.

It is up to HMRC to prove carelessness.

Taxpayers have to be careful in what they say to HMRC. HMRC will be probing the taxpayer to see if he will admit carelessness or admit to actions that indicate carelessness. A balance should be struck in terms of being helpful with HMRC and not giving HMRC so much information that it can apply higher penalties.

Providing a taxpayer takes reasonable care preparing his tax returns and getting his tax affairs right, no tax geared penalty will apply. 

1. If you are stuck in preparing your tax return then delegate return preparation, all or in part, to a suitably qualified adviser.

2. If you have had a technical query and you manage to get through to HMRC's advice line to seek advice, make sure that you ask the right questions and record your call. Take notes in evidence of your conversation if you wish to rely on the advice given.

3. If you have delegated to an adviser, double check that you have given them all the correct information. Typically the sort of things which are omitted from returns are:

  • P60s from different pensions and employments
  • P45 information (information from a previous job) where you changed jobs in the tax year.
  • Random bonus payments and share awards
  • Interest on bank and building society accounts
  • Dividends from shares.

4. Check again that you have given your adviser everything they need.

5. Read the declaration on the tax return before you sign it.

Do you need to check your advisers' work?

HMRC expects you to check that your adviser has completed your return correctly. However, this is not always a logical approach. If you have delegated the task of preparing your return to another because you did not understand your tax, or your affairs are complicated then the checking that you can do of anyone else's work may be quite limited.

Put it another way, if you take you vehicle in for a service you would not expect to have to check the oil levels after the garage have completed their work even though most people can easily check an oil level. 

How far you should go in checking your adviser's work depends on your own know-how and the complexity of your affairs. This is considered in more details in our Client guide to Taking Reasonable Care.

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