Penalties Q&A updated
HMRC have released an updated list of their Penalties Q&A for accountants and tax advisers. This is intended to help advisers help their clients avoid the inaccuracy, failure to notify and wrongdoing penalties.
There are over 50 separate questions and answers relating to the three penalties which were introduced after the Powers review which was prompted by the merger of Inland Revenue and HM Customs & Excise in 2005.
The rules related to inaccuracy penalties are intended to make this basic penalty simpler to understand and more consistent across the taxes.
Penalties can range from 0% upto 100%. It will be 0% where reasonable care can be shown to have been taken when the inaccuracy is resolved. The penalty may be equal to the underpaid tax where the error was deliberate and the taxpayer attempted to conceal it.
Failure to notify penalty
The penalty applies to taxpayers who fail to inform HMRC of changes relevant to their tax status.
In order to avoid being subject to a failure to notify penalty, taxpayers must ensure that they notify HMRC when their circumstances change in a way that will affect their tax filing obligations, for example where there are substantial changes in turnover or a new business activity commences.
The VAT and excise wrongdoing penalties apply in situations where taxpayers:
- Issue an invoice which includes ‘VAT’ that is not chargeable
- Handle goods on which excise duty has not been paid or deferred – for example bringing alcohol into the UK from abroad free of excise duty for personal consumption but ultimately selling the alcohol in the UK
- Use a product in a way that means more excise duty should have been paid – for example the sale of red diesel to non-qualifying persons
A wrongdoing penalty can be for up to 100% of lost tax revenue.