HMRC hit 20,000 taxpayers with toughest penalties over ‘deliberate’ errors

HMRC imposed 19,657 of its hardest penalties on taxpayers last year for committing what it describes as ‘deliberate’ errors in their tax returns, says UHY Hacker Young, with penalties set to increase as investigations restart

These fines for deliberate errors on tax returns can range between 20%-100% of the amount of tax due. They are issued against those who HMRC believes have attempted to reduce their tax bills by giving inaccurate information on their tax returns.

Last year HMRC fined 31,513 taxpayers for deliberate mistakes on their tax returns. UHY Hacker Young says the fall may indicate that HMRC’s long-term campaign to change taxpayer behaviour and reduce tax evasion and avoidance is now bearing fruit.

Out of the penalties levied last year, 72% (50,567) were on taxpayers who failed to ‘take reasonable care’. HMRC’s introduction of Making Tax Digital is likely to have reduced accidental errors by taxpayers, as a much higher percentage of tax returns are filed online.

However, the firm says that it is important taxpayers do not become complacent, as HMRC is likely to crack down on any deliberate underpayment of tax following the temporary suspension of tax investigations during lockdown.

In response to the coronavirus outbreak, public spending has soared due to government schemes such as the furlough scheme.

It is expected that HMRC will look to raise revenues and could turn to imposing harsh penalties as a source of income as it did following the last financial crisis.

Sean Glancy, partner at UHY Hacker Young, said: ‘HMRC has cut taxpayers some slack during the early part of the coronavirus crisis but that can’t last.’

‘The bill for the crisis will have to get paid and the government now sees tax investigations and fines as a really important source of revenue. The more it spends on tax investigations, the more it gets back.’

‘HMRC may have taken its foot off the gas on applying penalties in the past year, but the experience of the last financial crisis shows that the Treasury sees tax penalties as a way to plug the deficit in the public purse.

‘It’s vital taxpayers don’t lose sight of the fact that their tax bill can jump very quickly if HMRC chooses to penalise them for even accidental errors.’

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