Where tax has been underpaid HMRC charge tax geared penalties: i.e. a fine based on a percentage of the under-declared tax. For non-offshore related matters penalties can be up to 100% of the tax. For offshore related investigations harsh additional penalties can be charged. Penalties can be reduced depending on the quality and timeliness of any disclosures made. HMRC have increased the minimum penalties they will accept: in cases where early disclosures are not made.
Where a tax investigation leads to more tax being paid, HMRC is legally obliged to consider reducing the tax-based penalties. It has to take account of the “quality” of any disclosure that has been made: including the timing, nature and extent.
Until September 2016 no account was taken for the time elapsed between the date the inaccuracy or failure occurred and the date of the disclosure. But for any disclosure made after 5 September 2016 HMRC will not reduce the penalty any further than 10% points above the minimum of the statutory range in the following circumstances.
Firstly, in any case where the taxpayer has taken a significant period (normally more than 3 years from the date of the inaccuracy or failure) to correct the position.
Secondly, in cases where the taxpayer has additional tax liabilities relating to offshore matters, and had not previously used one of the various Offshore Disclosure Facilities to make a disclosure – regardless of when the inaccuracy or failure occurred.
New Minimum Penalties
In a tax enquiry where the taxpayer agrees with the tax inspector’s findings that taxes are due for the earlier years, the following minimum penalties will apply, depending on the behaviour involved: Careless Errors: 25%; Deliberate Errors: 45%; Deliberate and Concealed Errors: 60%. In cases involving offshore matters those minimum penalties can be doubled!
Penalties for periods before 2010
Where additional tax is charged for periods for 2010 different penalty rules apply. HMRC will not now give more than a 10% reduction for disclosure, and 20% reduction for the seriousness of the offence: meaning that a minimum penalty of 30% will apply. Further, the previously available additional 10% reduction for spontaneous disclosures will no longer be given.
Change of Definition of Voluntary Disclosures in Complex and Offshore Cases
In tax investigations involving complex issues, or where substantial offshore assets or investments are held, and the person claims to not understand their obligations, then if they have not checked or sought advice from a recognised tax professional HMRC are now likely to consider any errors as deliberate for penalty purposes.
How can Lynam Tax Enquiry Experts help me get a lower penalty?
Lynam Tax specialists are experts in tax penalty negotiations. We have over 80 years’ of experience in negotiating tax penalty levels, and can use our expertise to substantially reduce, and sometimes eliminate, the penalties that the tax inspector is demanding. We have helped hundreds of taxpayers achieve substantially lower penalties than those first sought by the taxman; including zero penalties in many cases.
For a free, confidential and no obligation discussion call Paul Lynam today on 0845 643 9997
or email email@example.com
NB. If you, or your client, are facing tax geared penalties Lynam Tax Enquiry Experts can help. The earlier in a tax investigation or dispute you involve us the more we can potentially save you: in tax, interest, penalties – and general grief and hassle.