How to make sure you take reasonable care if you need to send tax returns and other documents to HMRC, and what happens if you don’t.
Everyone has a responsibility to take ‘reasonable care’ over their tax affairs. This means doing everything you can to make sure the tax returns and other documents you send to HM Revenue and Customs (HMRC) are accurate.
If you don’t take reasonable care HMRC will charge penalties for inaccuracies.
HMRC will take your individual circumstances into account when considering whether you’ve taken reasonable care. If you’ve used tax avoidance arrangements, there are different rules about what ‘reasonable care’ is.
How to make sure you take reasonable care
HMRC expects you to keep records that allow you to send accurate tax returns and other documents to them.
If you aren’t sure about anything, you should ask HMRC or a tax adviser.
If you took reasonable care to get things right but your return or other documents were still inaccurate, HMRC won’t charge you a penalty.
Reasonable care if you use tax avoidance arrangements
If you’ve used tax avoidance arrangements that HMRC later defeat, they will presume you haven’t taken reasonable care for any inaccuracy in your return or other documents that relate to the use of those arrangements. This applies where the return or document relates to a tax period that began on or after 6 April 2017 and ended after 15 November 2017, and was sent to HMRC on or after 16 November 2017.
If you did take reasonable care, you’ll need to show HMRC how you did this when they talk to you about penalties.
If you’ve used a tax adviser with the appropriate expertise, HMRC would normally consider this as having taken reasonable care, unless it’s classed as disqualified advice.
Tax avoidance arrangements are classed as defeated if:
- you reach an agreement with HMRC - so the expected tax advantage of using the arrangements isn’t available
- HMRC sends you a tax assessment, or adjust your tax position, to counter the tax advantage - and you don’t appeal
- you appeal to a tribunal or court against HMRC’s assessment in relation to your use of an arrangement - and they rule in HMRC’s favour
- you take corrective action after receiving a follower notice
If you use a tax adviser
If you use a tax adviser, it’s your responsibility to make sure you give them accurate and complete information. If you don’t, and you send HMRC a return or other document that’s inaccurate, you could be charged penalties for inaccuracies.
Penalties for inaccuracies
HMRC may charge you a penalty if you’ve sent a return or other document with an inaccuracy that was either as a result of not taking reasonable care, or deliberate, and it results in one of the following:
- an understatement of a person’s liability to tax
- a false or inflated statement of a loss
- a false or inflated claim to repayment of tax
The penalty amount will depend on the reasons for the inaccuracy and the amount of tax due (or payable) as a result of correcting the inaccuracy.
If HMRC finds you’ve deliberately sent inaccurate returns or other documents, you could be charged a higher penalty or be taken to court.
There are different penalties for inaccuracies that are: