You are chancing your luck to think that the HMRC would even contemplate mitigating ot waivign the interest in this case as clearly whatever way you look at it your client has (whether by his mistake or yours - or a mixture of both ) had the HMRC's money in his hands for a time that he wasn't entitled to it.
As to penalties -assuming that HMRC can point to negligence and therefore get a penalty position this can truly be mitigated by qualifying for
(a) Full disclosure - max possible mitigation 20%
(b) Full Cooperation - max possible compliance with the enquiry and payment on account of duties to HMRC incorrectly obtained or due as soon as error recognised or acknowlwdged by you -Max 40%
(c) Size & Gravity - try and convince HMRC that a simple "innocent" mistake with no intention to deceive to obtain nearer the max abatement of 40% - possibly 35%
This would give a 5% penalty and 5% of £4,000 is £200 which would be below the de minimus limit for seeking penalties and would be waived. 10% will be above £400 and a penalty would be sought normally. Do what you can and hope HMRC can see it your way....
See my website if you want links etc or need to contact me about this type of thing i.d.c.
bill@wamstaxltd.com
http://www.wamstaxltd.com