HM Revenue & Customs (HMRC) scrutiny of tax returns has seen the number of taxpayers fined for careless mistakes rise by almost 300% in a year.
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Official figures show 14,401 taxpayers paid penalties for deliberate mistakes on tax returns in the 2013-14 tax year compared to 5,162 in the previous 12 months.
Before HMRC tightened up policy on errors on tax returns, many of these mistakes would have been treated as careless rather than deliberate, attracting a much lower penalty.
Tax law says taxpayers face a fine if a tax return or related document is inaccurate, and that inaccuracy leads to tax going unpaid or to a claim for too much relief.
The penalty is calculated as a percentage of ‘potential lost revenue’ and whether HMRC considers the taxpayer was deliberately avoiding tax or simply made a mistake when filling in a form.
Deliberate errors
According to the statistics obtained under a freedom of information request by accountants Baker Tilly, HMRC regards around 80% of mistakes on tax returns as careless mistakes. In many of these cases, HMRC suspended or reduced penalties.
If a taxpayer is classed as making a deliberate error, the scope is widened to impose more severe penalties.
The highest levels of penalty are reserved for ‘deliberate and concealed’ errors, where tax inspectors have no power to suspend the fine and offending taxpayers can even be ‘named and shamed’ in public.
Facing public disgrace means the potential lost revenue in the case should be more than £25,000.
HMRC explains the penalty regime in great detail for taxpayers and their advisers online
Tax avoidance
Mike Down, head of tax investigations at Baker Tilly said: “Tax avoidance is a serious issue and quite rightly, HMRC does everything possible to make sure taxpayers pay the right amount of tax.
“What these figures tell us is that HMRC is looking very closely at tax returns and imposing much sterner penalties on taxpayers who fail to declare their income properly.
“This is increasing revenues for the Treasury and hitting taxpayers harder in their pockets, but HMRC has to be careful that they are targetting people avoiding tax and not ordinary taxpayers who make simple mistakes because they do not understand the complicated tax code.”
The penalty system applies to expats and UK taxpayers equally.
Most main taxes are covered, including the big three that most people pay at some stage – income tax, capital gains tax and inheritance tax.
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