Reasonable care - inaccuracies in returns

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 Penalty rates and structure for inaccuracies in returns, Calculating the penalty for inaccuracies in returns - behaviour of the taxpayer and Calculating the penalty for inaccuracies - potential lost revenue guidance notes.

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 account:

• •whether the taxpayer is represented - in most cases an unrepresented taxpayer will have a lower understanding of the complexities of tax law than a represented taxpayer (in the case of an employer, HMRC is likely to take into account whether the payroll is run in-house and if so the level of expertise and / or qualification of the in-house staff)
• •the complexity of the tax affairs - if a taxpayer has particularly complex affairs the taxpayer could reasonably be expected to take professional advice (it might be reasonably expected that an employer would seek professional advice in the case of any unusual items of remuneration, such as a termination payment or the operation of a share scheme)
• •the taxpayer’s record keeping (in the case of an employer these would be primarily the payroll records)
• •the systems, processes and controls in place to ensure that tax is dealt