In April 2009, HM Revenue & Customs (HMRC) radically changed the laws applicable to the administration of all taxes – these centred around non-compliance by taxpayers. Tax legislation has more than doubled over the last ten years, but it is daunting that it still remains a taxpayers’ responsibility to ensure that they make correct returns, an increasingly difficult task with the numerous ‘grey areas’.
HMRC are now able to apply fixed penalties to taxpayers for making mistakes. Regardless of whether a tax payer has a tax adviser – if a tax return includes an error where the tax payer should have known better a penalty of 30% can be levied on the tax underpaid– and we expect that they will! (a penalty will still arise if losses have been made)
In addition to these penalties for minor errors, there are much more serious charges if items have failed to be disclosed to HMRC, up to 70% applies here, or for deliberate concealment the penalties can be as high as 100%.
Another aspect that HMRC are paying more attention to are the raising of Discovery Assessment”. HMRC can raise a Discovery Assessment (regardless if there time period for enquiry has passed) where they believe that they were not provided with the necessary facts to assess a tax return.
What this means is that in certain scenarios they are expecting to see additional information to explain certain entries.
A classic example of this was highlighted in a tax case “Langham v Veltema”, here the tax payer had included entries on his tax return which were based on a valuation. HMRC became aware of information that led them to be aware that the there was something unusual amount the basis of the valuation and so they wished to refer the case to the District Valuer. The taxpayer contended that HMRC were out of time but HMRC were successful in the courts because the tax return had contained insufficient explanation of the basis of the valuation.
In addition, under the new penalties regime it is possible for HMRC to raise significant penalties following a Discovery Assessment to yield even more tax.
With all this in mind it is more important than ever to make sure that you are getting sound tax advice. Tax compliance used to be about filling in the correct boxes on a return, it is much more than that now. It is important that additional disclosures are made, where applicable, to avoid scrutiny from HM Revenue & Customs. Our experienced team, including ex Revenue employees, seek to minimise the risk for you so you don’t have to worry or waste time with enquiries.
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