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New Penalties from April 2009

Newsletter issue - March 09.

The Taxman is getting tougher on taxpayers, businesses and employers, who make mistakes on tax returns, VAT returns and other forms such as P11Ds, and PAYE end of year returns which must be submitted to HMRC. From April 2009 there is a new system of penalties, which will be calculated as a percentage of the potential lost revenue that arises from the mistake.

Say you forget to include a company car on a form P11D. The tax due from the employee for the year could be £2,300, with NIC class 1A payable by the employer of £736, which would make the potential lost revenue from that one mistake: £3,036 (£2,300 + £736).

A penalty for this mistake can be imposed by the Tax Inspector according to your behaviour when you made the error. You and the Inspector will need to agree whether you:

  • Made the mistake in spite of taking reasonable care: no penalty;
  • Failed to take reasonable care: up to 30% of the potential lost revenue;
  • Deliberately made the error: 20% to 70% of the potential lost revenue;
  • Deliberately made the error and attempted to concealed the error: 30% to 100% of the potential lost revenue.

As you can see there is still some scope for negotiation with the Inspector regarding the level of penalties for errors and mistakes. However, there will be less room for negotiation than under the present penalty system. The amount of penalty will depend on whether you were prompted or unprompted by the Taxman to disclose the error and on various quality factors relating to the disclosure. If the mistake occurred because you failed to take reasonable care, the Inspector may suspend the penalty if you agree to improve your systems so that the mistake is unlikely to happen again.

One point worth considering is that if you take reasonable care there can be no penalty. It may therefore be worthwhile reviewing your book-keeping systems with us to ensure you have a system that may lead the inspector more towards the opinion that any error did not come because you failed to take reasonable care over your book-keeping!

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