TAX ENQUIRY 2009/10

[Janus11]

My 2010 Return was submitted, but one employment was omitted. As a result a tax refund of £3K was reduced to £100. The inspector has initiated an enquiry and is seeking to charge a penalty for careless completion of the return. No refund was ever made, but they are imposing a penalty of 15% for potential lost revenue. Can this be right? Any help would be much appreciated.

[mullet]

A penalty loading of 15% is the statutory minimum under the FA2008 rules for penalties for inaccuracies, so in one sense you should be grateful to have received the maximum reduction for the quality of your disclosure (the statutory range for "careless" is 15% to 30%).

Carelessness is synonymous with negligence. Interestingly, the definition of negligence still being relied upon comes from the Birmingham Waterworks case – in the year 1856 I think. Negligence (among other things) is not doing something that a reasonable man would be expected to do, and doing something which a reasonable man would not be expected to do. Later cases have established that a reasonable man (among other things) would be expected to make a full and correct return of all sources of income. He would also be expected to seek professional assistance with matters he is unable to deal with properly himself.

If you have omitted one of two or three sources of employment income, then I don’t think you can argue against a penalty. But if this was one of ten sources, then you might have a chance. But you would still have to explain precisely what you did – back to the reasonable man completing his tax return, I would expect him to think about the employments that he had during the year and ensure that he had a P45 or P14 for each one, which would be used to complete the employment pages.

So who completed your tax return? What checks were carried out to ensure that all employments had been included? Was the overpayment of £3,000 expected or a surprise? If a surprise, did you contact HMRC to see what might be wrong? The fact that the money was not repaid is irrelevant - what matters is the return itself, which you declared to be correct and complete.

[wamstax]

This one is possibly one that shows up the unfairness of the new penalty system. I do think that we need a timescale of your client's own actions and considerations (much as contained in the final para of Mullet's response) However in addition we would also need to potentially consider how and when HMRC were advised of the error in the original return and against this when any amendment to the return was made and the date of the HMRC notice to enquire (presumably into the original return). Any enquiry into the (or any amendment) would not of course result in any difference in tax as required in relation to S95 penalty

[wamstax]

This one is possibly one that shows up the unfairness of the new penalty system. I do think that we need a timescale of your client's own actions and considerations (much as contained in the final para of Mullet's response) However in addition we would also need to potentially consider how and when HMRC were advised of the error in the original return and against this when any amendment to the return was made and the date of the HMRC notice to enquire (presumably into the original return).

Any enquiry into the revised return (or any amendment to the original return) would not of course result in any difference in tax as required in relation to S95 penalty.

It could also depend for example on why the source of income was not included and whether there was a "provisional" marking on the return which would have given the client up to 12 months to amend the return

[mullet]

whether there was a "provisional" marking on the return which would have given the client up to 12 months to amend the return

The period of 12 months (from the statutory filing date) within which to amend the return is available whether or not the provisional box is ticked. In my opinion all the provisional box does is give HMRC a better reason to enquire into an original return i.e. where an amendment has not yet been made. Very few people would over-estimate taxable income/profit, so it's an easy hit for HMRC.

[wamstax]

Hi Mullet,
We will have to agree to differ here as the provisional marking is very useful for covering the last minute submission where all the information is not available and where submitting the return with an entry left out would be intentionally submitting an incorrect return. I am not advocating the submission of provisional returns as a practice for as you say HMRC would be more inclined to open enquiries where matters were not finalised within a reasonable timescale.

We do not have all the details need to answer the question - especially about timings etc and nature of enquiry etc - and probably its best for us not to sidetrack the stream with what may be side issues. regards

[mullet]

We will have to agree to differ here as the provisional marking is very useful for covering the last minute submission where all the information is not available and where submitting the return with an entry left out would be intentionally submitting an incorrect return.

I agree with that bit entirely ... I just forgot about it.

[wamstax]

Hi Janus 11 Are you intending to provide the further information requested to get a fuller answer?