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HMRC internal manual

Compliance Handbook

From
HM Revenue & Customs
Updated
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Charging penalties: establishing penalty behaviour: examples of questions to establish behaviour: inaccuracies

You should prepare questions separately for each inaccuracy to deal with the particular circumstances but you might consider asking some of the following questions to help establish the behaviour.

General

  • What steps did the person take to ensure that their return or document was completed correctly?
  • What records did they keep to enable them to calculate the correct amount of tax to be paid or claimed?
  • Who is responsible for what in the person’s business? What is the person’s role?

Income missed from an individual’s return

  • Was the source of income shown on any documents, such as a bank statement? If it was why did they not check this?
  • What did the person do to check that everything was returned? Why was the specific income missed?

Records lost or destroyed

  • When were the records mislaid, lost or destroyed, and under what circumstances?
  • What did the person do to reconstruct the records? Did they attempt to get copies of the documents?

Ignorance, a misunderstanding or incorrect interpretation of the law

  • Did the person check the legal position directly with HMRC, check HMRC’s guidance or ask their agent? If not, why not?
  • If they were uncertain about the correct tax treatment, what advice was available and what was sought? If so, from whom?
  • If they did seek advice, what advice was obtained and did they follow this fully and correctly? If not, why not?
  • If they did obtain advice from someone other than HMRC, how did they check whether the person was competent to provide this advice?
  • If it was a misunderstanding of advice obtained, what did they not understand and why did they not check this?
  • If the advice they were given was contrary to HMRC’s interpretation of the law, did they tell HMRC? If not, why not?
  • If they were misdirected by HMRC, who did they speak to? Is there any supporting evidence?

Clerical or administrative error

  • When did the error occur and what chain of events caused the error?
  • Who made the error and why? What is their role in the business?
  • Had they received appropriate training? If not, why not?
  • What safeguards were in place to control the risk of clerical errors, if none, why. If there were safeguards in place, why did they fail?
  • What steps did the person take to check their work was correct, if none, why?
  • Did the person or another person know or subsequently find out about the error? If they did, why were HMRC not informed?

Computer, bookkeeping or other systems error

  • When did the error occur and what chain of events caused the error?
  • Was it a genuine systems error or a clerical error due to a misunderstanding or mistake in using the system?
  • Are similar errors common, but normally corrected? If they are common, is the system or correction mechanism sufficiently robust?
  • Did the person subsequently find out about the error? If they did, why were HMRC not informed?

Claim that it was the agent’s fault

  • What work did the agent carry out?
  • What information did you give the agent?
  • What did the agent tell you?
  • What checks did you make on the agent’s work before submitting/signing the return?

A person cannot delegate responsibility for their own returns and accounts. Any claim that errors, omissions, failures or wrongdoing are due to poor work by an accountant should normally be rejected.

If the evidence does indicate that the inaccuracy, failure or wrongdoing was attributable to the agent, see CH84545.

Incorrect treatment in the accounts or tax computations

  • What type of accounting system is in use? Is it computerised or manual? Do they have an accountant or bookkeeper?
  • Was this a genuine lack of knowledge about the correct accounting treatment or a systems or clerical error, such as using the wrong sage account code?
  • Why was the transaction treated in this way?
  • If they were uncertain about the correct accounting treatment, what advice was available and what was sought and from whom?
  • If they did seek advice what advice was obtained and did they follow this fully and correctly. If not, why not?
  • How long have they employed this treatment?

Mistake or misunderstanding when completing the return or document

  • Was it a simple transcription error or omission? If so, why did the person believe it occurred and what could they suggest could be done to stop it occurring in the future? If not, was there an underlying accounting or systems error?
  • Did they or anyone else check the return or documents before it was submitted? If not, why not?
  • If it was due to a misunderstanding of what should have been included in the return or document, did they read the relevant notes or seek advice? If not, why not?
  • Did they allow sufficient time to complete and check the return? If not, why not?