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HMRC ‘getting tougher on tax returns’

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HMRC figures show that it is getting tougher on those filing incorrect tax returns, putting greater numbers of people at risk of being named and shamed, says Baker Tilly. A response to a Freedom of Information request shows that the number of individual penalties imposed for deliberate as opposed to careless inaccuracies in tax returns almost trebled, rising from 5,162 in 2012/13 to 14,401 in 2013/14.

HMRC may charge a penalty when a tax return or other document contains an inaccuracy, and the inaccuracy results in tax being unpaid, understated or over-claimed. Under the new regime for penalties, which came into force from April 2008, the rate of a penalty charged by HMRC is now based on the percentage of potential lost revenue (PLR) and is dependent on the behaviour of the taxpayer. HMRC’s case management system records four categories of behaviour for inaccuracy: error; failure to take reasonable care; deliberate understatement; and deliberate understatement with concealment.

The vast majority of penalties (more than 80%) fall into the ‘failure to take reasonable care’ category which, in certain circumstances, can result in a penalty being suspended. However, the ‘deliberate’ behaviour categories carry significantly higher financial penalties and do not allow any opportunity for a suspension of the penalty. They also increase the possibility that individuals will be ‘named and shamed’.

Currently, individuals can be named and shamed if, following an HMRC investigation, a taxpayer’s behaviour is judged to have been deliberately inaccurate, if the offence relates to a tax period starting on or after 1 April 2010, and if the PLR exceeds £25,000 on a cumulative basis.

Mike Down, head of tax investigations at Baker Tilly said: ‘These new figures demonstrate that the taxman is getting much tougher on people who are under-declaring their income in their tax returns. By seeking more deliberate penalties, taxpayers are being hit harder, the Exchequer is benefitting from higher monetary receipts, and greater numbers of people are being put at risk of being named and shamed. However, HMRC needs to be careful here – the deterrent effect of naming and shaming may well be significantly diluted if too many people’s tax affairs are brought into the public domain.’