Introduction

The penalty regime in FA 2007, Sch 24 provides that there is no penalty where an inaccuracy leading to an underpayment of tax is made on a return or other document, provided the person took reasonable care. There is no statutory definition of reasonable care, so reliance must be placed on the guidance in the HMRC manuals and case law.

For a general overview of the penalty regime, see the Penalties for inaccuracies in returns ― overview, Calculating the penalty for inaccuracies in returns ― behaviour of the taxpayer and Calculating the penalty for inaccuracies ― potential lost revenue guidance notes. HMRC guidance can be found in the compliance checks factsheet CC/FS7A and the Compliance Handbook from CH81100.

For detailed discussion of these concepts see Simons Taxes A4.532A (direct taxes) and De Voil Indirect Tax Service V5.345 (indirect taxes).

Factors affecting reasonable care

Reasonable care will vary depending on the capabilities and circumstances of the taxpayer and the complexity of the issues affecting them. Therefore, the following are likely to be taken into