Taxpayers urged to challenge error penalties

Taxpayers who filed returns by the self assessment deadline of 31 January, but who made a mistake on their forms, could be facing a demand from HM Revenue & Customs (HMRC) for an inaccuracy penalty, tax campaigners have warned.

The Low Incomes Tax Reform Group (LITRG), an initiative of the Chartered Institute of Taxation, said on 24 February that an inaccuracy penalty was payable if an inaccurate return was submitted to HMRC that resulted in the taxpayer understating liability to tax or claiming too much loss relief or repayment of tax.

HMRC can define inaccuracies as careless or deliberate. Careless indicates that the taxpayer failed to take reasonable care, with the definition of reasonable depending on their particular circumstances and abilities.

The group said: “We are used to seeing the standard £100 penalty for failing to submit a valid return by 31 January; this year there also seems to be an increase in the ‘inaccuracy penalties’ charged when people get their return in on time, but have made a mistake.”

The LITRG added that if the mistake was a genuine error made while exercising reasonable care, HMRC was not entitled to charge any penalty, even if the tax liability was understated as a result of the error. In such circumstances, the taxpayer should appeal against a penalty notice, which the LITRG said was typically 15 per cent of tax understated.

LITRG chair Anthony Thomas said: “If you believe that you are being unfairly penalised for having made a genuine mistake it is crucial to remain aware of your rights and confident in exercising them. After all, anyone can make a genuine mistake.”

Link: Inaccuracy penalties information