How to appeal a penalty for a mistake on your tax return

24th February 2015

Taxpayers who  made a mistake in their self-assessment tax return could face a penalty from HM Revenue and Customs for 15% of the tax understated.

The Low Incomes Tax Reform Group (LITRG) says that taxpayers may appeal the fines with a number of potential  defences.

An inaccuracy penalty may be levied if you submit an inaccurate return to the Revenue which results in you understating your liability to tax or claiming too much by way of loss relief or repayment of tax.

HMRC may only levy the penalty if your mistake is either ‘careless’ or ‘deliberate’. ‘Careless’ indicates that you have failed to take reasonable care; what constitutes ‘reasonable’ depends on your particular circumstances and abilities.

If your mistake is not careless, but a genuine error made while exercising reasonable care, HMRC are not entitled to charge any penalty at all. This is the case even if your tax liability is understated as a result of the error. If you believe your mistake was not careless, then you should appeal against the penalty notice.

Your capacity to file a tax return may be dependent on your personal circumstances and abilities. For example, as their own official guidance states, they would not expect the same level of knowledge or expertise from a self-employed or unrepresented individual as from a large multinational company.

If HMRC has not contacted you to discuss your personal circumstances, background, experience with tax matters or how you prepared and checked your tax return, you will need to tell them how the error arose and might even need to formally ‘appeal’ the notice if HMRC does not seem to be considering fully your own ‘abilities and circumstances’.

Even if you admit to having been careless, the penalty can be reduced if you tell HMRC that you have made a mistake, give them reasonable help in quantifying it and allow them access to records so that they can make sure it is fully corrected. If you tell HMRC about your mistake before they know about it, they can reduce the penalty to zero. If HMRC points it out to you, the minimum penalty they charge is 15%.

You can choose whether to ask HMRC for an internal review, which means that your case will be looked at again impartially by an officer or go directly to the First-tier tribunal. The Revenue usually deals with review requests within 45 days. Taxpayers typically have 30 days from the date of the decision to lodge an appeal against it.

Anthony Thomas, chairman of the LITRG, said: “This year some have already received inaccuracy penalty notices for mistakes in their return and whilst nobody enjoys receiving them, it is important they when they do, taxpayers are aware of their rights and duties.

“If you believe that you are being unfairly penalised for having made a genuine mistake it is crucial to remain aware of your rights and confident in exercising them. After all, anyone can make a genuine mistake – HMRC have been known to make mistakes too.”


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