Penalties for Incorrect Tax
The aim of every tax inspector in every tax enquiry is to get you to pay more tax than you declared. Then they also want to charge you a "tax-geared" penalty. That can be up to 100% of the extra tax. Where the evaded tax is linked to an offshore bank account or asset the penalty can be up to 300%!
Tax officers will charge penalties on extra tax due, as a result of their tax investigation if they believe an error occurred as a result of "careless" or "deliberate" behaviour. Voluntary disclosures get lower penalties. If Her Majesty's Revenue and Customs believe the error was deliberate and no voluntary disclosure was made the penalty range is a minimum of 35% (and more usually 45%, if the tax relates to irregularities that started over 3 years before any disclosure), and a maximum of 70% of the additional tax. Serious tax fraud can have a penalty range of 50% (and more usually 60%) to 100% of the extra tax.
Since October 2018 the maximum penalty in cases with overseas links, such as an offshore bank account, is 300% of the previously undeclared tax: plus in some cases 10% of the value of the offshore asset! More information about the new harsher penalty regime for Offshore Interests can be found on our page dealing with Offshore Disclosures.
As the extra tax is being paid late, late-payment interest is also charged. The rate varies from time to time as it is set at 2.5% above the Bank of England base rate.
The Tax Inspectors also have a few other worrying other punishments in their armoury.
- Where a penalty is chargeable on a company for a deliberate error, and that inaccuracy is attributable to an officer of the company, then the penalty (which may be 100%) can be transferred to the company officer - a term which includes: a director; a shadow director; a manager; and a company secretary.
- Also in the case of deliberate fraud, where over £25,000 is due to HMRC and the taxman is not happy with the level of co-operation and disclosure, taxpayers can face "naming and shaming". HMRC can publish details of the taxpayer: including information about name, address and the amount of tax evaded. This Tax Offenders register will remain public for a year, and HMRC will actively encourage local papers to print stories. This can have a very adverse affect on suppliers and credit ratings.
- HMRC also have their own version of tagging. Its "Managing Serious Defaulters" programme means that anyone caught fiddling their tax could face intrusive follow up scrutiny - for the next 5 years, after the initial tax investigation has ended.
On a more positive note: if the Tax Inspectors can be persuaded that the under-declarations were the result of innocent errors then no penalties will be charged. Or if they accept that the irrregularities were not deliberate, but caused by failure to take sufficient care, then the penalties can sometimes be reduced to nil (in unprompted disclosure cases) or suspended.
How can Lynam Tax Enquiry Experts help me get a lower penalty?
Lynam Tax specialists are experts in tax penalty negotiations. We have over 90 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
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.
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