How can I demonstrate that mistake was not "Careless"?

[stuartb3502]

Hi,

I hope someone can help. I completed a SA for 0910 back in April and submitted. HMRC are now investigating because I omitted some income.

The income relates to a redundancy payment made in May of last year. I think I forgot to put it on the tax return mainly because my P45 from that employer did not show it and I just pulled out the records and completed the return. In fact, although I obviously knew about the payment my employer never sent details of it or tax which had been paid and it simply slipped my mind. They in fact paid basic rate tax through PAYE, but some it is subject to higher rate. I have replied (saying that it was an oversight and with an updated and corrected SA).

I'm now deeply concerned because HMRC have sent me the Human Rights leaflets etc. but have not said how they'll treat this. I've completed SAs for many years and my affairs had always been simple enough to handle this. I fear the the change in circumstances last year has caught me out somewhat and as I've only recently starting earning a modest income again, I could do without a penalty.

Can anyone advise how this is likely to be considered and if there is anything I can now say or do to reduce a penalty or reduce the chance of incurring one?

Thank-you
Stuart

[mullet]

HMRC's general line is that an omitted source will always be the result of careless behaviour unless the person had no awareness of that source - e.g. a bank account opened by grandparents while the person was a minor, and now giving rise to a liability because of income chargeable at higher rate.

If it was a minor amount then that might work in your favour - or was it a lot? HMRC base their approach on the 1856 Birmingham Waterworks case - they consider what a "reasonable man" would have done in the circumstances - things like make a full and accurate return of all sources, engage professional assistance to help deal with matters which cannot be handled using own knowledge/experience etc.

If you want to argue the point, you will have to demonstrate that you took care and that the omission arose despite your best efforts.

[stuartb3502]

Thanks very much for the reply. It doesn't sound good. Because it's a redundancy payment I believe there's an additional tax liability of ~£9K so the penalty could be sizeable. I'll have to argue it. I used the records I had which would normally have been adequate, but because I didn't have any tax related correspondance from my ex-employer this fell outside of that (redundancy details in a different file). In fact, I've recently contacted my employer for details of the tax paid and they can't explain the numbers they reported to HMRC which were slightly different to the actual amounts.

As for advice, I had actually just engaged an accountant for the first time just before I did this tax return, but for a business set up. The scope of that engagement did not cover my personal tax return for 0910.

It seems somewhat unfair that a minor slip (although I appreciate its a large-ish amount) should lead to a potentially big penalty. Last year HMRC launched a check on me, put me through a load of worry and then it turned out they were looking at the wrong year! They seem to be able to get away with such carelessness without even an apology.

Regards

Stuart

[wamstax]

Let us put it in perspective as regards the penalty - if you had merely returned the amount late such that the tax was paid late you would have had to pay interest on the tax paid late plus if the tax was late enough you would have had late payment surcharges:-
S59C(2) charges 5% of the tax/NICs unpaid on the day following the expiry of 28 days from the due date.
S59C(3) charges another 5% on the tax/NICs unpaid on the day following the expiry of 6 months from the due date.

So that tax being paid 6 months late (i.e. after July 2010) would have incurred an automatic 10% surcharge that would have been inevitable unless you had a reasonable excuse for making the return late and with late payment.

So if you manage to get the officer to agree a 10% penalty (not unknown but needs proper arguments put together on the minor amount of carelessness) then you are no worse off than somebody that merely put in their tax return late without a reasonable excuse.

So if at the worst you end up getting a 30% penalty (and assuming that you make all the right noises and pay the estimated tax by way of a payment on account as soon as you are in a position to calculate it this would be the worst scenario) your penalty would be anything between £900 and £2,700.

OK I know that the top figure is meaningful but do you really believe that your error was a totally innocent one without any degree of carelessness? Put yourself in the position of anybody that omits possibly £45K of taxable income from their tax return; would you believe that they were TOTALLY INNOCENT. I think not.

Best of luck

[stuartb3502]

wamstax,

Thanks for your perspective. Can you explain the relevant dates? Ordinarily my 0910 return and owed tax would have been due in electronically in Jan 11.

I did the return in Apr 10. Where does the July 10 date come in for tax due?

Thanks
Stuart

[wamstax]

I have just given myself a slap on the wrist as I mistakenly read (don't ask me how or why) that the enquiry was into the tax return for the year to 5th April 2009 so that you were paying tax back that was due on 31st Janaury 2010 - hence plus six months made July 2010.

[stuartb3502]

Thanks Bill. Can anyone (more out of academic interest at this point) help me understand whether this check happening before the 0910 SA is ordinarily due makes any difference to my situation?

What's the situation wrt to SAs being final even though the due date has not passed? i.e. if I'd realised my error and submitted an amendment before the final due date would I have been OK? If so, the only difference would be that they've commenced a check?

Thanks
Stuart

[wamstax]

Unfortunately Stuart the crux of the matter is that HMRC have apparently issued an enquiry notice and while you can of course make an amendment during the enquiry this will not be actioned until the enquiry closure is effected AND of course any tax unpaid as a result of a carelessness error will carry a penalty.

[stuartb3502]

Thanks again

As an aside, I tried on a couple of occasions to go in and check the return (having been unable to save or print when I submitted it - it didn't work for some reason last year or this). I got "system unavailable - please try later" style messages. It transpired later that because I had done one amendment early on, I could not view or amend the return again (this is a known system bug which HMRC have confirmed to me). So I could not check and potentially discover my error.

Regards
Stuart

[wamstax]

Well could this be the start of a reasonable excuse ?