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In the last of this short series, author and journalist Nick Morgan offers more ways to prove "Reasonable Care", to reduce penalties.

The HMRC factsheet, Penalties for Inaccuracies in Returns and Documents, is issued to your client when HMRC believes a penalty is likely to be due. The document is full of crucial information, most of which is buried in the text. The ebook Penalties for Inaccuracies in Returns and Documents DECODED is an analysis of the HMRC document; digging up true meanings and telling your clients what they need to know.

Client: Oh no! Not more on ‘Reasonable Care’ it’s sooooooo boring!

Expert: This is what you need to know to avoid a penalty, so stick with it!

HMRC: Some of the ways you can show that you took Reasonable Care include keeping accurate records so that you can complete your tax records accurately [and] checking with a tax adviser or with us if you are not sure about anything.

Client: Explain!

Expert: HMRC are saying that if you want to make a strong argument for Reasonable Care (and so no penalty) you must have accurate tax records…

Client: What’s that? I stuff all my receipts in a shoebox for the whole tax year. Is that good?

Expert: Not really no, but it’s better than not keeping anything. What HMRC will be looking for are records that show all the money coming in – cash and cheques – and validating all the money going out. And they will want dates on everything.

Get a ring binder then go through your entire shoebox putting all your receipts in date order. Then put that data on a spreadsheet with separate columns for separate expenses; travel, postage, telephone, professional fees and so on. Make sure you can account for everything going in and out of your account. 

If you’ve lost receipts or don’t have bank statements go out and get copies.

Invoices should have the same treatment. All numbered, all dated and all in order.

Some accounts will be simple and some more complex, but keeping accurate records comes down to recording all the information that will allow you to submit an accurate tax return. It’s as simple as that.

Client: What about the bit that says if I’m not sure about anything I should check with a tax advisor or HMRC? It’s a bit late for that.

Expert: Dig deep! Did you go on a business short course that had an accounting section? Did you ever go to the HMRC website to look for advice or call them up or write to them? Ever talk to an accountant or tax advisor – even informally. If you’ve done this look for a record to substantiate it, a listing in your phone bill or even something scribbled in a diary.

Checking with HMRC is a fabulous insurance. Let’s say you had wanted to join a tax avoidance scheme or you just weren’t 100 percent sure about your return. If you had taken it to HMRC and said, “I just want to double check that what I’m doing is legal / accurate / won’t get me into trouble later” and then HMRC signs it off, well then you have a good argument for not paying a penalty.

HMRC records phone calls and may well have a word–for–word account of what has been said.

Having a tax advisor or an accountant will help show that you wanted to pay the right amount of tax and will help show that you’ve made efforts to get your figures right, but they are not a get–out. Ultimately you are responsible for your tax.

There is no requirement in law to have an accountant or even a book–keeper. Not having one does not ordinarily equate to negligence, as HMRC may suggest.

Penalties for Inaccuracies in Returns and Documents DECODED costs £10. You can get more information and buy the ebook here

About The Author

At the start of 2005 Nick Morgan was working as a self-employed freelance journalist. HMRC opened an investigation into his tax return.

Nick attended an interview (unrepresented) and was both open and truthful. He also supplied all the documents asked for.

An investigation like this which is small and where there is full cooperation shouldn’t have lasted more than 12 months. But this went on for five years.

The investigators were bullish and petty with HMRC showing neither proportionality nor regard to the cost (to the taxpayer) of running such a small investigation for so long.

Nick used his journalistic skills to expose HMRC; he recorded telephone calls and interviews and carried out Freedom of Information and Data Protection searches. These investigations broke new ground and exposed the investigators as incompetent and vindictive. All this information was uploaded on a website for anybody to see.

It soon became apparent that what was happening to Nick was typical of what was happening up and down the country.

Nick further exposed HMRC’s underhand practices in a Sunday Times spread and other national papers.

Since then HMRC has put pressure on its investigators to be more proportionate and to be more mindful of expense.

To help others Nick built tax-hell.co.uk where he’s written broadly about tax investigation, tax law and the tactics of HMRC.

The website has helped 100s of 1000s. Some leave comments about how Tax-Hell.co.uk has helped them. Many say, “I don’t know what I’d have done without you.”

He’s written three ebooks which translate HMRC-speak into clear English and he also offers free tax advice (from a fully qualified advisor) to anybody who needs it.