When HMRC discovers “errors” in tax returns the decision as to what type of “behaviour” caused the error can be crucial. A recent Tribunal case involving a “glamour model” gives us a very useful indication of how behaviours might be interpreted by HMRC and/or the courts.

Generally, if an error was an innocent one HM Revenue and Customs can generally only go back 4 years, and cannot charge any penalties. For “careless” errors HMRC can go back 6 years, and can charge modest penalties – which may even be suspended in some cases. However, where an error is “deliberate”, then HMRC can go back up to 20 years, charge swingeing tax geared penalties; and sometimes publish a taxpayer’s identity on the name and shame list.

So, determining the type of behaviour that led to an error can have serious consequences. A recent First Tier Tribunal decision [2019 UKFTT 0526 (TC)] considered the case of a “glamour model and entertainer on adult TV” whose tax returns were investigated by the taxman, who then found that her profits had been understated. In particular, she had been claiming deductions for some items which turned out not to be allowable. However, she had ticked the “provisional” box on her tax return – indicating that some figures may be subject to change.

The Tax Tribunal decided that her errors were caused by carelessness and were not deliberate. The Tribunal adopted the definition of deliberate behaviour from the case of Auxilium Project Management Ltd [2016 TC 05024], i.e. that a “deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention of HMRC should rely upon it as an accurate document”. As she had ticked the “provisional” box, the Tax Tribunal decided that she was effectively alerting HMRC that they could not wholly rely on the tax return figures as being totally correct. Therefore, there was no intention to deceive HMRC.
Although she still ended up paying some penalties, they were £9,200 less than HMRC had originally assessed based on deliberate behaviour.

What does this mean for me?
If you’re under enquiry by HMRC you should not always accept the taxman’s interpretation of your behaviour. In the adversarial British tax system, the Tax Inspector may argue for a “higher” level of behaviour: bringing into play more years and higher penalties – whereas a lower level may be more appropriate.

How can Lynam Tax Enquiry Experts help me?
Lynam Tax Enquiry Experts are specialists in dealing with behaviour issues: particularly relating to time limits and penalties. We have had enormous successes over the years in persuading HMRC and the Tribunal that lower levels of behaviour are appropriate.

For a free, confidential and no obligation discussion call today:
Paul Lynam: 0845 643 9997
or Andrew Nutbrown: 0771 877 8710

NB. If you are facing extended time limit assessments or tax geared penalties, Lynam Tax Enquiry Experts can help. The earlier in a tax investigation you involve us, the more we can potentially save you: in tax, interest, penalties – and general stress.