A sub-contractor was delighted to find that HMRC’s computer had doubled up the amount of CIS tax that he had had deducted under CIS in 2009/10. This meant no further tax to pay on 31 January 2011…or so he thought.

If you are strapped for cash should you own up when HMRC make an error in your favour? Any rational person will say “definitely yes”. For those who are unsure perhaps a closer look at the HMRC’s new tax penalty regime will make a difference to your answer. 

A subbie asked HMRC for his total tax deducted under the CIS scheme after worrying that he had lost a CIS voucher for his SA tax return. He could not believe his good luck when he found that HMRC’s total was considerably higher than the one that he had in mind. Sensibly he phoned a friend who happened to be a tax adviser for clarification on HMRC’s print out. Closer inspection revealed that something was not right; every entry for the year was duplicated. 

The taxpayer put the correct figures on his tax return and reported the problem to HMRC. He did not have any problem about pointing out the error. For those who are undecided about such action, maybe a quick run through Schedule 24 FA 2007 may be sensible. Under Sch 24 a tax penalty may be due when a taxpayer makes a careless error or fails to notify HMRC about an under assessment of tax.

In the subbie’s case he stood likely to qualify for a penalty in one of two categories:

  1. Error or mistake by a taxpayer: if he used HMRC’s figures which were so obviously much higher than his own, and failed to investigate the difference he would be displaying not only a "lack of reasonable care" but there might be a case of "deliberate concealment" if HMRC spots the mistake first. A tax penalty calculated as a percentage of the potential loss of tax, would be in the range of 30% and 100% of the tax due.
  3. Failure to notify HMRC about an under assessment: although a print out of CIS deductions is not an assessment as such, if HMRC continued to use its own figures and this resulted in an adjustment to his SA return that could create an underassessment. A penalty for failing to notify HMRC within 30 days of an underassessment is calculated at 30% of the tax under assessed.

What of the CIS glitch?

We are hopeful that the glitch does not mean that every CIS subbie will be getting excess refunds, it seems likely to be a localised problem. HMRC says:

“This is a sporadic internal display screen issue of which we are aware, and which our IT partners are looking to rectify as soon as possible. It does not affect any data sent to the SA system, so no customer will be credited with additional deductions against their SA return.”

Further reading: tax penalties: error or mistake in a return