HMRC set to increase tax return penalties

Higher penalties for taxpayers who deliberately understate or mislead on
their tax returns are set to be introduced.

HM
Revenue & Customs has released a
consultation
document setting out how it will increase penalties for
deliberately incorrect tax return filing, while holding back on penalties if
reasonable care has been taken to provide correct information.

The new consultation includes details of:

* a single penalty structure to apply for incorrect returns for income tax,
corporation tax, PAYE and national insurance contributions, and VAT

* no penalties where a taxpayer has taken reasonable care to complete the
return correctly but makes a mistake that understates their tax liability

* a moderate penalty if a taxpayer understates their liability by failing to
take reasonable care

* higher penalties if a taxpayer deliberately understates their liability

* higher penalties still, if a taxpayer covers up any deliberate
understatement

* substantial reductions, or even complete waiver, of penalties if a taxpayer
voluntarily discloses irregularities and gives HMRC all the help they need to
quantify the tax lost

* smaller reductions of penalties if a taxpayer discloses an irregularity at
a time when they had reason to believe HMRC suspected it

* suspended penalties for taxpayers who fail to take reasonable care when
completing their return but agree to take steps to ensure that the problem will
not recur.

Comments are
invited on the consultation by 13 March 2007.

Further reading:

Taxman ratchets up disclosure regime
pressure

HMRC to treat Gaines-Cooper as a
one-off

Billionaires choose London as a tax
haven