Penalties for carelessness

by **burnbanks** on Wed Nov 17, 2010 6:13 pm

After an prolonged investigation into my 08-09 return, it turns out I
made a pig's ear of the online form. Net Income was put in the Tax
Deducted box, generating a rebate. This was repaid 5 months ago but I
expect it classifies as Potential Lost Revenue, for which they are
charging a 15% penalty for being Careless. I also put interest from a 5
year bond in the wrong return. Since they got the tax a year early I
cannot see why it is Potential Lost Revenue but they want 15% for that
too. They have sent me a Draft Offer form to sign, with total penalties
and interest demanded of £1000. Seems a heavy price to pay for slips of
the cursor. Does anyone know if is it worth asking them to reconsider?

by **AvocadoK** on Wed Nov 17, 2010 8:01 pm

HMRC will say, yes, it was an easy and forgivable mistake to make, to put a figure in the wrong box. But they will then say, did you not think it very odd that the form generated a rebate? They will say that a reasonable person would have realised something was wrong and gone back and checked. Now, if you can honestly say that you double and triple checked it and still couldn't find anything wrong, they might regard it as an innocent error and let you off the penalty.

I think 15% is high, but you won't get less than 10%. I would revise the draft offer letter to include 10%, but will be interested to hear what other contributors suggest too.

AK

by **wamstax** on Wed Nov 17, 2010 9:07 pm

We do not know the amount of the repayment nor do we know whether the tax on the bond related to a year that is/was capable of being remedied by an amendment prior to HMRC issuing an enquiry notice for the correct year.

However depending on the reason for the prolonged enquiry into the 2008-09 return I would have to question just why they repaid tax 5 months ago if this was during the time that they were enquiring into the return.

Can you beef out the full timescale of the enquiry and years for which mistakes (both over and under) were made with the amounts of income under or overcharged and the tax that they are claiming for each year

by **burnbanks** on Thu Nov 18, 2010 2:06 am

Well I got the rebate of £9700 in late 2009. I was expecting a SED rebate so I didn't query it. The enquiry for 08-09 began in April 2010. I'm guessing, but it was presumably as a result of putting the figure in the wrong box. I put net income of c £9K but should have put tax deducted of c £4K. Each time I sent interest, tax deducted and other figures it took them 6 to 8 weeks to reply. By early July I realised that I might not be entitled to the SED rebate after all, so I repaid it or deposited it with HMRC - I know they took the money because at some point it "disappeared" from my balance. It wasn't until August that they told me about the wrong box error. The 5 year bond was taken out in late March 2003 and interest of c £6K put on my 07-08 return. I hadn't realised the bond wasn't started until after April 6 2003. That's potential lost revenue of c £1000. I also got muddled with bank interest, mainly through not having all the certificates. The potential lost revenue is £250. Their revised Tax Calculation says I have overpaid tax by £700. So the Tax Liabiity is c £9K, which appears to be the original rebate minus the tax overpaid. The 15% penalty on lost revenue is almost £1K, plus interest.
Thanks.

by **AvocadoK** on Thu Nov 18, 2010 8:12 am

What does SED stand for, please?
AK

by **burnbanks** on Thu Nov 18, 2010 11:11 am

Seaman's Earnings Deduction

by **AvocadoK** on Thu Nov 18, 2010 10:46 pm

So the penalties are largely to do with the incorrect SED claim, rather than the slip of the cursor on the interest. Whether a penalty is due depends on whether you took reasonable care with the return. They might have let you off with an isolated and insignificant error on the interest, but if there have been a few errors, including a significant one on SED, then I think you wouldn't get very far appealing against a 15% penalty....which is at the low end of the spectrum.

AK

by **burnbanks** on Fri Nov 19, 2010 1:06 am

No, the penalties are only for interest omissions and that slip of the cursor. Thanks for the advice anyway. When SA was introduced, to make it more palatable, an Inland Revenue official told me an accountant would not be necessary. For years they corrected small errors FOC. They have now clamped down with heavy penalties for errors that do not actually deprive them of tax, while ignoring their own foibles. So, I have decided I must use an accountant from now on. And I shall write a will and deprive them of all the IHT they would have got!

by **AvocadoK** on Fri Nov 19, 2010 8:17 am

The lost tax on interest was £1000+£250=£1250 wasn't it? (per your second post). 15% of £1250 is £187 penalty. Not sure, therefore, where the £1k penalty comes from if it is not re the SED error.
Re the (lack of) need for accountant - yes, I remember that as being the party line from HMRC when SA came in. They don't say it so much nowadays!
Regards
AK