Incorrect tax return means penalties – not necessarily

The client submitted his tax return and omitted a “bonus” payment. He was in dispute with his former employer and regarded the “bonus” as part of his tax free compensation payment. He sought advice from his Accountant and Solicitor before leaving the bonus off his tax return, and furthermore drew attention to this fact when submitting his return.

The Tax Inspector decided that the bonus was indeed subject to tax and sought to impose penalties for a “deliberately” incorrect return. This was later reduced to a penalty for being “careless” rather than deliberate resulting in a lower penalty. The client was still aggrieved but the Accountant and Solicitor could do no more. He consulted me through a mutual colleague and I established that, as the client had drawn attention to the disputed payment when submitting his tax return, he had acted neither deliberately nor carelessly.

In fact the mistake should have been clarified as an “error despite taking reasonable care” which carries no penalties at all. I sent the Inspector copies of HMRC’s own guidance notes and the penalty was cancelled in its entirety.

other Case Studies