Tax penalties for deliberate errors rise six-fold

25 January 2017

Mike Down

We’ve had a lot to say previously about HMRC inconsistencies in applying the behavioural penalty regime where taxpayers make errors in their tax returns.

Penalties are charged according to the type of taxpayer behaviour that leads to an inaccuracy and on whether the tax adjustment is volunteered freely or arises as a result of an HMRC challenge.

There are four categories of behaviour. Of least concern is a mistake despite taking reasonable care, next is the failure to take reasonable care (or ‘careless’), moving up to ‘deliberate’ and finally to the most serious – an inaccuracy which is ‘deliberate and concealed’. Put simply, the more serious the behaviour, the higher the penalty.

New figures obtained by RSM under the Freedom of Information Act 2000 reveal that the number of penalties imposed by HMRC against those deliberately understating income has jumped considerably over the last year.

In 2015-16, the taxman imposed 28,663 penalties against those whose inaccurate returns deliberately understated their income, up from 20,740 in 2014-15, a rise of 38 per cent. In 2012-13 the figure was just 5,162, an almost six-fold rise in deliberate penalties over a period of four tax years.

This spike in penalties suggests a marked change in attitude at HMRC, and it is clear that inspectors are now taking a much harder line.

However, HMRC needs to be wary of the perception that it is engaging in ‘penalty farming’ and ensure it doesn't unfairly penalise people who are not seeking to deliberately deceive.

For more information please get in touch with Mike Down, or your usual RSM contact.