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!
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.
BASIC RULES OF PROMPTED AND 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%
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)
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
2. Carelessness (Expect a max 30% PLR penalty here)
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)
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)
False accounting, invoicing, destroying records, misleading agents or
Revenue,fictitious records, to conceal. Likely prosecution cases)
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!