Carelessness, Negligence, Penalties – And How To Avoid Them!

 In Carelessness, HMRC Investigation, Negligence, penalties

When somebody says to me, “Oh, careless mistake!” I’m 7 and I’m back in a maths class and I’ve forgotten to carry the one over. When my radar picks up “negligence” my head is full of hospital x-rays where the forceps have been left in. The words “careless” and “negligence” will trigger different associations in the minds of people reading this. But nobody – in their right minds – will say that carelessness and negligence are the same things.

But HMRC argue that carelessness and negligence are the same thing, Here’s what they say, ‘The law defines ‘careless’ as a failure to take reasonable care. Failure to take reasonable care can be likened to the longstanding concept in general law of “negligence”.’ So when HMRC talk about being caress, what they are actually talking about is negligence.

Why is this so important?

Cash and power: by merging the definitions HMRC can slap the taxpayer with a hefty penalty of up to 30% – awwwch. And not only that, they can make discovery assessments which will allow them to look into earlier years.

There has been a really interesting case reported in Taxation by Keith Gordon where he says,

“…HMRC often accuses taxpayers of carelessness in any circumstances where they want to justify a discovery assessment, irrespective of the actual facts of the case….”

He goes on to talk about a recent case study where a taxpayer had used HMRC’s website to submit his return. Because of an error on the part of HMRC the taxpayer was told he should pay just £1.20 in tax.

Then, about 16 months later he got a letter telling him he owed £4,650 in capital gains tax.

Keith Gordon continues, “The taxpayer paid the balance immediately. However, HMRC were still not satisfied. Although the taxpayer had been told by the Revenue’s own software that his tax liability was £1.20, the HMRC officer considered that the taxpayer had been careless [that’s negligence remember?] by relying on the official software and threatened to charge a 15% penalty…”

I know, you just couldn’t make this stuff up!

The taxpayer took this to an internal review but HMRC’s review body reinforced the original findings of HMRC: the taxpayer had been careless  (negligent) in relying on HMRC’s own software to calculate taxes, the case was then taken to the tribunal.

Keith Gordon continues, “…the tribunal concluded that HMRC had failed to establish that the taxpayer had brought about any loss of tax carelessly. In fact, the tribunal made the further finding that the taxpayer had taken reasonable care in submitting his return. The taxpayer’s appeal was allowed.”

So this story – at least – has a happy ending, but the moral is this: when HMRC start to talk about carelessness, they really mean negligence and that’s a really big deal.

Some information for this post was taken from Everything you wanted to know about a tax investigation… and the quotes have been taken from Taxation magazine.
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