UK Taxpayer Stung By Tax Return Mistake

27 April 2010

A subcontractor from Kent in the United Kingdom has found himself facing a GBP1,400 fine for making a 'careless' mistake with regard to his tax affairs, despite the fact that HM Revenue & Customs actually owed him money.

According to McGrigors, the law firm representing the taxpayer in question, the tradesman had calculated that he was owed GBP3,000 in rebate payments, whereas the actual amount due back was GBP1,000. HMRC therefore fined the taxpayer 70% of the difference between the two estimations, resulting in a GBP1,400 penalty.

Under the previous penalty system, fines were generally only imposed where tax was underpaid, or where payments or returns were submitted late.

New rules imposed in recent times, however, permit HMRC to impose fines of up to 30% for 'careless' mistakes, of between 30% and 70% in cases where taxpayers have been deliberately misleading, but have not concealed their actions, and from 50% to 100% where taxpayers have been deliberately misleading and have concealed their actions.

Phil Berwick, Director of Tax Investigations at McGrigors, observed that:

“Taxpayers will probably not be aware that HMRC have the ability to impose a penalty in these circumstances. They will certainly be unaware that what appears to be a simple mistake can be treated so severely by HMRC.”

According to reports on the case, the initial discrepancy which led to the rebate claim was the result of the taxpayer's misunderstanding of aspects of the Construction Industry Scheme (CIS), which impacted on him as a self-employed subcontractor within the construction industry.

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