HMRC expects taxpayers to keep records that allow them to provide accurate tax returns and other documents to them, and says if anyone is unsure about anything, they should ask HMRC or a tax adviser.

If a taxpayer does take reasonable care to get things right, but their return or other documents were still inaccurate, HMRC will not charge a penalty.

For those using tax avoidance arrangements, there are different rules about what ‘reasonable care’ is.

HMRC says that if someone has used tax avoidance arrangements that HMRC later defeat, the presumption will be that they have not taken reasonable care for any inaccuracy in their return or other documents that relate to the use of those arrangements. This applies where the return or document relates to a tax period that began on or after 6 April 2017 and ended after 15 November 2017, and was sent to HMRC on or after 16 November 2017.

If a taxpayer feels they did take reasonable care, they will need to show HMRC how they did this when discussing penalties.

If an individual used a tax adviser with the appropriate expertise, HMRC would normally consider this as having taken reasonable care, unless it is classed as disqualified advice.

Tax avoidance arrangements are classed as defeated if they meet any of the following criteria. These are: where the taxpayer reaches an agreement with HMRC - so the expected tax advantage of using the arrangements is not available; when HMRC sends a tax assessment, or adjust an individual’s tax position, to counter the tax advantage - and they do not appeal; when a taxpayer appeals to a tribunal or court against HMRC’s assessment in relation to their use of an arrangement - and they rule in HMRC’s favour; or when an individual takes corrective action after receiving a follower notice.

Anyone using a tax adviser is responsible for making sure they are given accurate and complete information. If someone fails to do this, and sends HMRC a return or other document that is inaccurate, they could be charged penalties for inaccuracies.

Penalties may be charged on returns or other documents with an inaccuracy that was either as a result of not taking reasonable care, or deliberate, and which results in one of the following: an understatement of a person’s liability to tax; a false or inflated statement of a loss; or a false or inflated claim to repayment of tax.

Anyone receiving a penalty will need to pay or appeal within 30 days of the date on the notice of penalty assessment.

The penalty amount will depend on the reasons for the inaccuracy and the amount of tax due (or payable) as a result of correcting the inaccuracy. There are penalties for inaccuracies that are deliberate, but not concealed, and those that are both deliberate and concealed.

Reasonable care: tax returns and other documents is here.

Report by Pat Sweet