Let’s face it, we are all human and make mistakes. To err is human, to forgive divine, and all that jazz. Unless, of course, you are HMRC, in which case that forgiveness malarkey goes out of the window…
Just in case you didn’t know, HMRC’s tests for non-compliance (i.e. whether your tax return is right or not), include a consideration as to whether you have been a) careless, b) deliberate, or c) deliberate and concealed. Depending on what they believe, you will either get a fine, a large fine or, in cases of serious fraud, a prison sentence.
Believe it or not, HMRC’s guidance on the connection between carelessness and negligence uses an 1856 case (Blyth vs Birmingham Waterworks Co. if you are interested) and the current HMRC Compliance Handbook includes this quote:
“Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do. The defendants might be liable for negligence, if, unintentionally, they omitted to do that which a prudent and reasonable person would have done, or did that which a person taking reasonable care would not have done.”
Deliberate mistakes, where, for example, a company gives false information or deliberately withholds information in connection with a return or document are done consciously and therefore are taken more seriously, although of course, the burden of proof is on HMRC to demonstrate this. Deliberate and concealed mistakes are yet more serious, or to put it more bluntly, fraud, and as such more likely to earn you a spell in chokey.
However, it’s the careless errors that occur most frequently, and with pressure on HMRC to ensure that as much tax as possible is gathered, they issued nearly 90,000 penalties in the 2021-22 tax year, up from 49,701 the previous year.
It is believed that part of the reason for this increase (other than the government’s demand for our money) is that during the pandemic HMRC had more staff working on customer service (I know, that’s another topic altogether!) but now that things are back to normal they are returning to their ‘proper’ jobs and focusing more on these errors.
One of the most simple and common examples of negligence is filing your tax return after the deadline. Last year, 1.3 million people were fined by HMRC for failing to declare their income on time, netting the tax authority £130m in penalty revenue. Late files are hit with automatic £100 fines and face further penalties and interest charges. Other examples of carelessness (‘unprompted disclosure’) can lead to fines of up to 30% of the tax lost.
There was, however, some respite for the self-employed after the figures showed 80% of the penalties issued by HMRC were subsequently suspended. Moreover, you can, of course, challenge HMRC’s assertion that your mistakes were careless, arguing instead that you took reasonable care to avoid the mistake. If you can show reasonable care, any penalty should be cancelled altogether rather than suspended. However, that doesn’t alter the fact that it’s far better not to make the mistakes in the first place. And if you want to make sure you don’t then get in touch and we’ll be pleased to advise you.