Inflicting or contradicting? Why HMRC can't make its mind up about fines...

17 September 2015

Mike Down

HMRC has started sending Self-Assessment ‘correction’ letters to taxpayers failing to disclose the receipt of Child Benefit on their Tax Returns. The good news is that HMRC simply ask for payment, and don’t appear to be imposing ‘inaccuracy’ penalties. But this is in stark contrast to recent cases where the taxman has aggressively pursued penalties for the simplest of errors…

HMRC has started to issue a number of Self-Assessment ‘correction’ letters where taxpayers with annual income in excess of £50,000 have failed to disclose the receipt of Child Benefit on their 2013-14 Tax Returns. It seems that for these cases, HMRC’s approach is going to be very ‘light touch’, with letters simply requesting settlement of the amount due. Nowhere in the letter is there mention of the possibility of ‘inaccuracy’ penalties being sought as a result of the error, or indeed whether HMRC intend to pursue any similar underpayment for 2012-13.

This contrasts starkly with the robust pursuit of penalties in many other ‘inaccuracy’ cases where HMRC deem the taxpayer’s behaviour to be ‘careless’. A recent Tax Tribunal decision provides a good example of HMRC’s typical approach. The case involved an individual who upon retirement from employment, started to draw a pension. With the pension having already been taxed (albeit at basic rate) at source, the taxpayer overlooked the need to include the initial pension receipts of £8,468 on his 2012/13 Tax Return. Additional tax of £1,775 was found to be due, and HMRC sought a 15 per cent penalty of £266 on account of the taxpayer’s ‘careless’ behaviour. Upon appeal, the Tribunal upheld HMRC’s view and confirmed the imposition of the penalty, rejecting the taxpayer’s request for suspension of the penalty, claiming that the error involved a ‘one off’ matter for which suspension conditions could not be set going forward.

We are seeing considerable inconsistencies in the way in which HMRC seek penalties in cases such as this where arguably simple errors occur. Whilst it is encouraging to note HMRC’s approach to Child Benefit cases, it does seem unfair that others who make errors when completing their tax returns are being subjected to much harsher treatment. A worry for the future is that proposed changes to the Tribunal system will, if adopted, result in fees being charged to register and conduct appeal cases. This may lead to the perhaps inevitable result that many taxpayers, when faced with HMRC seeking relative small amounts of penalties, will simply decide to give up by not pursuing appeals - even where they consider that their actions leading to the inaccuracy were no more than a basic mistake.

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