Mitigation of penalties from compliance checks

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Mitigation of penalties from compliance checks
  • Mitigating the additional tax liability
  • Mitigating interest
  • Mitigating penalties

Mitigating the additional tax that may be due as a result of an inaccuracy, in addition to mitigating the penalties that may be charged on conclusion of a compliance check, should be considered by the adviser throughout the course of the check.

Mitigating the additional tax liability

If an inaccuracy is found in a return during a compliance check, an adviser should give thought to whether there are any actions or claims that could be made to mitigate the additional tax liability.

For example, if additional items are found to be capital that have been charged as revenue expenses, the adviser should ensure that capital allowance claims are made for the items if they qualify. The adviser should also review the return for any expenses that may have been missed (eg use of home as office, use of private car for business purposes, loan interest).

Mitigating interest

If interest is charged on additional tax due, it is generally difficult to mitigate this unless HMRC has caused undue delay in concluding the enquiry in the case of a contract settlement. See the Concluding the compliance check guidance note. However, an interim payment (also known as a payment on account or an on-account payment) can be considered in order to prevent further interest arising once a liability has been established. A general on-account payment could also be considered, if appropriate, before the actual liability has been fully quantified.

Mitigating penalties

HMRC judges the behaviour of the taxpayer in assessing penalties and therefore impact can be made during the course of the enquiry in addition to at its conclusion.

Can reasonable care be established?

If a taxpayer can establish that ‘reasonable care’ was taken in submitting a tax return, a penalty should not be charged if an inaccuracy is found.

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