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Take care to avoid a penalty
14 July, 2009

Take care to avoid a penalty You could be charged a penalty if you don't take reasonable care with your tax affairs. HM Revenue & Customs (HMRC) acknowledge that most people do take care to declare and pay the right amount of tax. They use penalties to stop people who don't take care from gaining an unfair advantage.
Take care to avoid a penalty
 
 
You could be charged a penalty if you don’t take reasonable care with your tax affairs.
 
HM Revenue & Customs (HMRC) acknowledge that most people do take care to declare and pay the right amount of tax. They use penalties to stop people who don’t take care from gaining an unfair advantage.
 
After consultation, HMRC are replacing a wide variety of penalties for inaccurate tax returns with one system across almost all taxes.
 
 
When does it apply?
 
HMRC can charge a penalty if your return or other tax document is inaccurate and as a result you don’t pay enough tax, or if you don’t tell them a tax assessment they have sent to you is too low.
 
The new penalty system applies to documents with return periods from 1 April 2008 where the documents are due to be filed from 1 April 2009 for:
 
·      Capital Gains Tax
 
·      Construction Industry Scheme
 
·      Corporation Tax
 
·      Income Tax
 
·      National Insurance contributions
 
·      PAYE
 
·      VAT
 
 
How does it work?
 
You will have to pay the additional tax and any interest that is due. If HMRC charge a penalty it will be a percentage of the additional tax. The penalty rate now depends on the type of inaccuracy. The more serious the reason for the inaccuracy the higher the penalty can be. HMRC will not charge a penalty if you took ‘reasonable care’ to get things right but still made a mistake.
 
If you send HMRC an incorrect document they will charge a penalty if the inaccuracy:
 
·      is because you failed to take reasonable care – you were careless
 
·      is deliberate – you intentionally send them an incorrect document
 
·       is deliberate and concealed – you intentionally send them an incorrect document and try to conceal the inaccuracy
 
 
What is reasonable care?
 
‘Reasonable care’ varies according to the person, their circumstances and their abilities. But HMRC expect everyone to make and keep sufficient records for them to provide a complete and accurate return, and to update them regularly.
 
Some of the ways you can show you took reasonable care, and avoid a penalty include:
 
    * keeping accurate records to make sure your tax returns are correct
    * checking what the correct position is when you don’t understand something
    * telling HMRC promptly about any error you discover in a tax return or document after you’ve sent it.
 
 
When will HMRC reduce a penalty?
 
HMRC can reduce a penalty if you tell them about an inaccuracy, especially if this is unprompted.
 
A disclosure is unprompted if when you tell them about the inaccuracy you have no reason to believe they have discovered, or are about to discover it. Everything else is a prompted disclosure. The table below shows the range of penalty percentages that can be applied to an inaccuracy.
 
The following table shows the range of penalty percentages that can be applied to an inaccuracy.
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