Tax Update (March 2009)

New Penalty regime

The new penalty regime comes into effect in respect of returns that are due to be filed on or after the 1^st of April 2009 and includes Income Tax (including Self Assessment), VAT, employers paying PAYE, National Insurance Contributions, Corporation Tax, Capital Gains Tax and the Construction Industry Scheme (CIS).

HM Revenue & Customs (HMRC) have always charged penalties for incorrect returns or documents but what is different about the new regime is that penalties will be charged based on the behaviour that gives rise to the error.

The behaviours that will incur a penalty are where the error is because you failed to take reasonable care, or where the error is deliberate but unconcealed (do not attempt to hide the error), or where the error is deliberate and concealed (take active steps to hide the error). You will not be charged a penalty where you took reasonable care but still made an error. This will also take into account your discovery of an error after you have sent the return and how soon you notify HMRC.

Reasonable care will vary from individual to individual dependant upon their particular circumstances but some ways you can show you took reasonable care are by keeping accurate and up to date records, retaining your records in case you need them later, checking the correct position where you do not understand something, or seek advice from a competent advisor, or telling HMRC promptly about an error you discover after you have sent your return.

You can reduce the penalty due if you tell HMRC about any errors without being prompted, help them work out any extra tax is due and allowing them to check your figures.

The penalties will be a percentage of the extra tax due but the rate will be dependent upon your behaviour as follows:

Following discussions HMRC will issue a penalty notice. You will still have the right to appeal against the decision.