Taking Account

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Tax Penalties from April 2009

March 2009

Penalties for inaccuracies on returns

New penalty rules will apply from April to mistakes on tax returns and other tax documents which result in an underpayment of tax (or a potential underpayment of tax).

The actual amount of the penalty charged under this heading is affected not only by the amount of tax lost, but also by the taxpayer’s behaviour.

Where errors are made despite you taking reasonable care to get the return correct, there will be no penalty. All taxpayers will need to take care with their tax, and try to keep sufficient records on which to base their tax returns (and accounts). If they do so, then they should not be penalised for any mistakes they make.

Actual penalties will vary between 0% and 100% of tax lost.

The first returns affected by the new penalties are:

  • Self Assessment Tax Returns 2008-09
  • VAT period ending 31 March 2009
  • Corporation Tax Returns – accounting periods ending on or after 1 April 2009
  • Payroll returns P35 and forms P11D for 2008-09

Where a penalty for carelessness has been levied, HMRC has the power to suspend the penalty and make recommendations about improvements in systems that the taxpayer might implement to ensure that errors of the same type do not occur in the future. If the business implements the recommendations during the period suggested then the penalty can be cancelled, in view of the increased compliance achieved.

Late registration penalties

HMRC are also stepping up the penalties for late registration. For example, if a business exceeds the VAT registration threshold, it has 30 days to notify HMRC that it is liable to VAT on form VAT 1.

Rates of penalty again vary between 0% and 100%. Once again, the business will need to be aware of the tax obligations it must meet and ensure that registration is made as soon as the need arises. If an obligation has been overlooked, it is important that this is identified as soon as possible so that a voluntary disclosure can be made, ideally reducing the penalty to zero.

Hilton Sharp & Clarke