Owner-Managed Businesses

Penalties for inaccuracies in returns under old rules

Produced by Tolley in association with Philip Rutherford
  • 08 Nov 2021 07:51

The following Owner-Managed Businesses guidance note Produced by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Penalties for inaccuracies in returns under old rules
  • Introduction
  • What periods are covered by the old regime?
  • When are old penalties applied?
  • Negligent and fraudulent conduct
  • The calculation of old penalties
  • Direct taxes
  • VAT
  • Collection of penalties

Penalties for inaccuracies in returns under old rules

Introduction

HMRC has the legal power to charge a civil penalty where there are errors in or omissions from tax returns. The penalty regime in operation prior to 1 April 2009 (known as ‘old penalties’) differs from the current regime (known as ‘new penalties’). The two regimes run alongside each other and will continue to do so for a number of years, as the basis for applying penalties depends on the original filing date and period of the tax returns concerned.

For more on the new penalties in FA 2007, Sch 24, see the Penalties for inaccuracies in returns ― overview guidance note.

What periods are covered by the old regime?

The old penalties regime applies to tax returns with a filing date up to and including 31 March 2009.

For income tax, capital gains tax and Class 4 national insurance contributions, old penalties apply to tax returns up to and including the 2007/08 return.

For corporation tax and VAT, old penalties apply to returns filed on or before 31 March 2009.

For employer year-end compliance, old penalties apply to returns filed on or before 31 March 2009. These year-end forms include P35s, P14s, P11Ds and construction industry scheme (CIS) returns. However, in practice these penalties were seldom applied.

When are old penalties applied?

Negligent or fraudulent conduct must be established by HMRC before a penalty for an incorrect tax return can be charged. HMRC’s guidance can be found at EM4802. If the taxpayer or agent can persuade HMRC that the mistake resulted from an innocent error, no penalty will be chargeable. It is up to the taxpayer or agent to establish this. For HMRC guidance on innocent error, see EM5180 onwards.

HMRC is often resistant to such claims and normally attributes negligence to the person or business to which the return relates, even if the taxpayer maintains that the agent was at fault. A taxpayer can still be deemed to take reasonable care even if

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