Albasas - Tax Compliance- Notice Issued

"Nowadays, are you not in fact, without knowing it, just being encouraged to offer up your own future culpability, 'to have a go at tax calcs' whilst ignorant to the vast array or minefield of existing procedural tax penalties added to the original tax and interest that HMRC claim might be underpaid? Only known well after the Notice to check your tax return was issued? What is a tax liability anyway? Is it an opinion? Be warned it is not quite the same thing as that, or your best estimates, more reasonable care than that is the legal expectation. You or your Agent will need to demonstrate same to HMRC and back this up somewhat forensically."
"So having on side an experienced professional to fight any attempt by an Inspector of HMRC to 'break' any area of your tax return or importantly the business accounts is a necessity."
"No one inexperienced can ever really  handle a tax enquiry or review. Maybe, just create, or be duped, into the illusion that they can for false economy sake? Well yes. In my experience this is always often true!"

Robert Mitchell, Principal, Albasas.
If you receive a HMRC Notice of any intended compliance check, and then discover, that innocently, you have completed a tax return or similar negligently and then can't prove that you took reasonable care, your culpable! Punitive penalty 'stealth type' taxes will inevitably follow on the basis of whether you are found by HMRCs to have acted in either a careless, naughty ,or hopefully never - wicked manner!

There are now 4 new levels of culpability and within each level 2 types of penalty. The 2 types of penalty are basically what is termed 'prompted' or taxpayer volunteered and 'unprompted' as in the taxpayer did not volunteer the information and so was discovered in the course of working the enquiry. So in other words penalties are discounted for prompting HMRC with what you know to be wrong before it is found out. This does not apply if you were originally reticent to prompt/ help out the enquiry when an opportunity existed earlier and now feel minded enough too talk- technically this is still an unprompted disclosure. The simple appliance of  behavioural science in the area of  tax compliance. Monkey see, monkey do, from the HMRC perspective.

HMRC now have the power to levy some of these penalties on culpable company directors, or the specific director, in their personal legal capacity as an individual. A culpable director will have no limited liability when prompted or unprompted disclosure is proven against them, and so will be charged a suitable penalty just as if they were self employed. For example, circumstances, such as a company officer, perhaps having neglected their stewardship, or having been negligent as to their basic duty of reasonable care, as is required of them, in the day-to-day running of a company, under the Companies Act, will find that reasonable care is not a defence available to them against these new prompted and unprompted disclosure penalties. Of course, all other relevant facts need to be taken into consideration here before the directors culpability to a personal penalty is proven.

Again its the appliance of  behavioural science in the area of  tax compliance. In life people tell lies, exaggerate, and over dramatise etc, whether they realise they're doing it, (prompted), or not, (unprompted). So HMRC simply seek to cash in on your natural responses and reactions in any given tax situation. A bit like the way existing penalties work for speeding in a car.or similar motoring offences, only less obviously so. HMRC tax compliance checks are not an everyday event like say driving into work is. Even if we couldn't pass our driving test today without retraining, we all kind of know our way competently around the Highway Code, but certainly not round tax compliance legislation. That's the big difference here. Your all round actions to assure the right tax is paid as due will be tested. If you're a willing, but naive, have a go hero, good luck! Watch the civil penalties rack up, I venture, as you totally misunderstand that confession of everything as far as HMRC are concerned, is not always good for your soul, and might lead on to a taxation version of a medieval 'inquisition' in the 21st Century on your cashflow and savings. HMRC have been known to go in for extortion. Think on. 

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Meet the Parents - Lie Detector
HMRC. Prompted or Unprompted Disclosure?


The 3 main penalty ranges that concern us for unprompted and prompted disclosure are:

Type of error and the penalty range    
                                                            Prompted disclosure      Unprompted disclosure

Careless                                     0%-30%             15%-30%

Deliberate but not concealed    20%-70%                35%-70%

Deliberate and concealed          30%-100%              50%-100%

The first level is not listed, because,  if you took 'reasonable care' but still made a mistake through say 'innocent error', HMRC say they will not charge a penalty. 

Category & Type of 'Penalty' Behaviour Broken Down:

1. Reasonable Care ( Expect a 0%Potential Lost Revenue penalty here)

(Examples: Need 'adequate records' took a reasonable view of the law which turns out to be wrong, intention not relevant you either did it or not, and basic systems in place to demonstrate that there was no significant negligence);

2. Carelessness (Expect a max 30% PLR penalty here)

(Examples: Failure to take care, bad internal controls, not taking proper advice, incomplete records, misclassification, breach of duties, absence of skill- generally negligence);

3. Deliberate understatement (Expect a 20% min - max 70% PLR penalty here)

(Examples: Not acting properly just omitting facts when you know its not the right thing to do, deliberately misleading arguing and misinterpreting the law, i.e. not recording sales, not declaring private use, inappropriate accounting treatment, basically deliberate misinterpretation of the law. Border line prosecution case.)

4. Carelessness with concealment (Expect a 30% min - max 100% PLR penalty here)

(Examples: False accounting, invoicing, destroying records, misleading agents or Revenue,fictitious records, to conceal. Likely prosecution cases)

Of course the above all assumes some culpability on the part of the taxpayer by HMRC. Another very good reason for seeking our professional advice if selected for a compliance check, business review, investigation or enquiry. Call it what you will, the above prompted and unprompted disclosure rules will apply if your selected. Please call for our advice on your own situation if notified of any review into your business operations by HMRC. Call now on 0141 404 6115 / 07889 277552!