Guidance

Compliance checks: penalties for careless inaccuracies relating to tax avoidance CC/FS7c

Updated 16 June 2023

Penalties for careless inaccuracies relating to tax avoidance

We have asked you to read this factsheet because:

• we believe you used tax avoidance arrangements that do not work
• there is an inaccuracy in your return or other document
• we’re considering charging you a penalty for the inaccuracy

We explain these terms in the section ‘What the terms ‘tax avoidance arrangements’ and ‘do not work’ mean’.

About this factsheet

This factsheet tells you how we’ll consider charging penalties if you sent us an inaccurate return or other document. We’ll consider penalties if the inaccuracy:

• relates to the use of tax avoidance arrangements
• was a careless one — meaning it was caused by your ‘careless behaviour’

It applies to returns or documents that:

• relate to a tax period that began on or after 6 April 2017 and ended after 15 November 2017
• were sent to us on or after 16 November 2017

Careless behaviour is where you failed to take reasonable care to get things right. You can find out more about this in the section ‘What reasonable care means’. In this factsheet, the term ‘inaccuracy penalty’ means a penalty for an inaccuracy in a return or other document.

This factsheet is one of a series. For the full list of factsheets in the series, go to GOV.UK and search ‘Compliance checks factsheets’.

You can find more information online about how to take reasonable care, and what happens if you do not. Go to GOV.UK and search ‘Reasonable care: tax returns and other documents’.

This factsheet at a glance

This factsheet tells you that:

• we may charge you a penalty if you sent us a return or document that contained an inaccuracy
• we will not charge a penalty if you took reasonable care to make sure there were no inaccuracies
• when the inaccuracy relates to tax avoidance, you need to satisfy us that you took reasonable care
• if you used tax avoidance arrangements, taking reasonable care includes getting professional advice (that was not ‘disqualified advice’) from someone with the appropriate expertise — and being able to demonstrate to us that you did this
• if you have evidence that you took reasonable care, you should send it to us when we ask for it
• you should also read factsheet CC/FS7a, as it contains important information — including about your rights, and how you can help reduce the amount of an inaccuracy penalty

If you need help

If you have any health or personal circumstances that may make it difficult for you to deal with us, please tell the officer that’s contacted you. We’ll help you in whatever way we can. For more details, go to GOV.UK and search ‘get help from HMRC if you need extra support’.

You can also ask someone else to deal with us on your behalf, for example, a professional adviser, friend or relative. We may however still need to talk or write to you directly about some things. If we need to write to you, we’ll send a copy of our letter to the person you’ve asked us to deal with. If we need to talk to you, they can be with you when we do, if you prefer.

What you need to do now

Please read this factsheet carefully, especially the section ‘What reasonable care means’. If you have evidence that you took reasonable care, please send it to us when we ask for it. It may help if you talk to us, so we can help make sure you’re sending what we need. If you have a tax adviser, you may want to talk to them about this.

Penalties for inaccuracies in returns and documents

When you read this factsheet, please also read factsheet CC/FS7a ‘Penalties for inaccuracies in returns and documents’. It gives you more information about penalties for inaccuracies, including about:

• what you can do to reduce any inaccuracy penalty we may charge
• how we work out the amount of an inaccuracy penalty
• your rights when we’re considering penalties
• finding out what caused the inaccuracy (known as your ‘behaviour’)
• the different types of behaviour — including careless behaviour and deliberate behaviour

To get a copy, go to GOV.UK and search ‘CC/FS7a’.

When we may charge you a penalty for a careless inaccuracy involving tax avoidance

We may charge you a penalty if you sent us a return or other document that contained an inaccuracy and all of the following apply:

• tax is understated or over-claimed because of the inaccuracy
• the inaccuracy relates to the use of tax avoidance arrangements that do not work
• the behaviour that caused the inaccuracy was careless (we explain more about this in the section ‘What reasonable care means’)

What the terms ‘tax avoidance arrangements’ and ‘do not work’ mean

Tax avoidance arrangements are arrangements that try to use tax legislation to gain an advantage that is not intended by the legislation. The term ‘arrangements’ includes any agreement, understanding, scheme, transaction or series of transactions — whether they are legally enforceable or not.

When we say tax arrangements ‘do not work’, this means a tax return or other document has been sent to us on the basis that tax avoidance arrangements have a particular effect. But they do not have that effect.

What reasonable care means

Taking reasonable care generally

Everyone has a responsibility to take reasonable care to get their tax affairs right. This means doing everything you can to make sure the tax returns and other documents you send us are accurate. If you do not take reasonable care, we can charge you a penalty. If you ask someone else, such as an employee or adviser, to do something on your behalf, you must do everything you can to make sure that an inaccuracy does not occur.

If you took reasonable care to get things right but your return or other document still contains an inaccuracy, we will not charge you a penalty. What ‘reasonable care’ is will depend on each customers abilities and circumstances

Reasonable care when you have used tax avoidance arrangements

There are different rules for penalties when the inaccuracy relates to tax avoidance arrangements.

The law says when the inaccuracy in your return or document relates to tax avoidance arrangements, you have to satisfy us that you have taken reasonable care.

If you do not, then we will presume the behaviour is careless, unless we believe it was deliberate, or deliberate and concealed. You can find out more about the different behaviours in factsheet CC/FS7a.

If we charge you an inaccuracy penalty for not taking reasonable care, you’ll be able to appeal if you disagree. If the inaccuracy penalty relates to tax avoidance arrangements and we have presumed the behaviour is careless, you’ll have to satisfy the tribunal that you took reasonable care. You can find more information in factsheet CC/FS7a about how we charge a penalty and when you can appeal.

Examples of ways that you can demonstrate you have taken reasonable care are:

• checking, as much as you can, whether the arrangements have the effect that is shown in your return or other document
• asking us, or a tax adviser, if you are not sure about anything and following any advice given (as long as that advice is not ‘disqualified’ — see the section ‘Disqualified advice’)
• making sure your tax adviser has the appropriate expertise — especially if there are any transactions or arrangements that you’re not familiar with (see the section ‘Appropriate expertise’)

Reasonable care when the inaccuracy does not relate to tax avoidance arrangements

If you send us a return or document containing an inaccuracy that does not relate to tax avoidance arrangements, then we have to demonstrate that you failed to take reasonable care.

Factsheet CC/FS7a tells you more about inaccuracies that do not relate to tax avoidance.

Appropriate expertise

When you’re asking someone for tax advice, you need to consider whether they have the appropriate expertise. For example, whether:

• they have the relevant qualifications
• they are a member of an accredited professional body
• their main business is giving tax advice

You need to take reasonable steps when considering whether the person has the appropriate expertise. Examples of taking reasonable steps are, checking their website, asking about their qualifications, or asking the opinion of a trusted independent person (such as a tax professional). You’ll need to tell us what steps you took and give us any evidence that shows what you did.

Disqualified advice

Advice is ‘disqualified advice’ if one or more of the following applies:

1. An `interested person’ gave you the advice (we explain this below).
2. The advice was given to you as a result of arrangements made between an interested person and the person who gave you the advice.
3. The person who gave the advice did not have the appropriate expertise for giving it.
4. The advice did not take account of your individual circumstances.
5. The advice was addressed to, or given to, someone other than you.

However, for items 1, 2 and 3 above, advice is not disqualified if:

• you took reasonable steps to check that the advice would not be disqualified advice
• you believed that it would not be disqualified advice

An ‘interested person’ is a person (other than you) who:

• participated in the avoidance arrangements, or any transaction forming part of them
• facilitated you entering into the avoidance arrangements, and did so for ‘consideration’ — whether or not that consideration was money (‘consideration’ means anything received or receivable)

Letting us know about any special circumstances

If there are any special circumstances that you believe we should consider when deciding about the penalty, you should let us know straightaway.

Suspending a penalty for careless behaviour

Factsheet CC/FS7a explains that we can sometimes suspend a penalty. We’re unlikely to decide to suspend a penalty that relates to the use of tax avoidance. This is because it goes against our anti-avoidance strategy.

More information

If you’re unhappy with our service, tell the person or office you’ve been dealing with. They’ll try to put things right. If you’re still not happy, they’ll tell you how to make a formal complaint.

Our privacy notice

Our privacy notice sets out the standards that you can expect from us when we ask for information or hold information about you. Go to GOV.UK and search ‘HMRC Privacy Notice’.