Taxpayers still to be fined for innocent mistakes unless they hire a tax professional
26th August, 2008
Titles that covered this article include Daily Telegraph, 6th September 2008.
Taxpayers are likely to be fined for innocent mistakes in their tax returns despite HMRC promising that they would not be penalised if they took ‘reasonable care’ when completing their returns, warns our tax experts. This is because HMRC is defining ‘reasonable care’ as taking advice from a tax professional, which would exclude the majority of high street accountants, from whom most taxpayers normally seek advice.
HMRC is introducing a new penalty regime for the under-declaration of tax in self-assessment returns. Under the rules taxpayers will not be penalised for honest mistakes in their returns as long as they can prove that they took ‘reasonable care’ to ensure they did not include those mistakes. It will also impose much harsher fines to those who deliberately mislead in their tax returns.
Says Simon Newark, VAT Partner at our London office: “Most taxpayers are under the impression that if they show ‘reasonable care’ to avoid errors in their tax returns by having them checked by their accountants, they will not be fined for the mistakes.”
“However, further guidance that we have received from HMRC states that they will only consider that ‘reasonable care’ has been taken if the taxpayer sought advice from a competent tax professional.”
Our experts also point out that not only does HMRC require the taxpayer to instruct tax accountants, they also want them to find experts with very specific tax experience. For example, if a tax calculation involves the valuation of a property, in order to exhibit ‘reasonable care’, taxpayers must ensure that their tax accountant is ‘competent’ in dealing with property issues.
Warns Simon Newark: “This is going to be a real problem for taxpayers that quite properly want to employ a small high street accountancy firm or a sole practitioner to deal with their affairs.”
HMRC unwilling to clearly define what makes an acceptable ‘tax professional’
When we asked HMRC for a definition of ‘tax professional’ HMRC’s reply was that: “we cannot and do not specify that an adviser should have certain qualifications. That is for the taxpayer to consider when choosing who to seek advice from.”
Says Roy Maugham, Tax Partner at our London office: “HMRC seems to be suggesting that the taxpayer should be in a position to determine whether the accountant is competent and experienced enough in tax matters to handle their affairs without making a mistake. We believe that it is unrealistic to ask that taxpayers judge whether their accountants are competent to handle their tax affairs.”
Says Simon Newark: “It is worrying that HMRC is not willing to provide a clear definition of ‘tax professional’. The ‘reasonable care’ clause is something that was clearly not given proper consideration and is already causing much confusion, rather than making things fairer and easier.”
Also a problem for non-tax accountants
Says Roy Maugham: “This is not just a problem for taxpayers. Non-tax accountants also need to clarify this issue. As professionals, their main aim is to give clients robust advice and legal protection. They need to know if HMRC believes their experience or lack of experience might fail the reasonable care test".
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