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Careless error: Another HMRC victory

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1st Apr 2016
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HMRC’s stiff application of careless error penalties shows no sign of yielding as two recent tribunal decisions have confirmed the fines imposed on a pensioner and a recent widow.

Both penalties were meted out for what HMRC deemed to be carelessness. John Graham, the pensioner, was slapped with a £318.48 fine for incorrectly filling in his tax return. In the other case, Aileen Bryson received a fine of £748.16 related to undeclared income. Both parties had already settled the outstanding tax liabilities and held unblemished records as taxpayers.

In the current tax system, a genuine mistake means no penalty. The next degree of guilt is termed as “lack of reasonable care” which carries a penalty of between zero and 30% of extra tax due. The line between these two degrees of guilt, as identified in the tax code, seems to be blurring.

In Graham’s appeal, he erroneously recorded his gross pensions in box 10 of his self-assessment return, entering the net figure instead. Graham also recorded a sum of tax deducted of £2,497 in box 11 when, in fact, only £467 had been deducted. The correct amount, the tribunal report notes would’ve been found on his p60, but Graham used bank statements instead.

In Bryson’s appeal, the widow surrendered a life policy in 2012 to produce funds she could invest in her then husband’s business. Her husband died suddenly in 2013 and, Bryson told the tribunal, the rest of 2013 was spent dealing with her loss. She also assumed directorship of her deceased husband’s company. She admitted that she completed her tax return at “the last minute” on January 31, 2014.

Later that year, Bryson received a letter from the tax authority stating there had been a check of her self-assessment tax return because HMRC had received information of a chargeable gain of £24,939 on a UK life insurance policy that was not declared on her return. Bryson told the tribunal that this was the first time the matter had been drawn to her attention.

She argued that HMRC seemed to expect “perfection” and refused to consider her exceptional, once-off circumstances. Both she and the tribunal noted that she had paid the outstanding amount (and interest) - but still received a (reduced) 15% penalty for her carelessness.

In dismissing Bryson’s case, the judge said he “carefully considered the circumstances of [Bryson’s] husband’s death which in certain circumstances might have mitigated the penalty”. But, the judge added, “the period of nearly nine months from the date of [Bryson’s] husband’s death to the date the tax return had to be submitted the gap was too long and that this remedy was not an option open to the Tribunal”.

Referring to Graham’s case, the same judge said he is “not unsympathetic” to Graham, but there “is a burden and responsibility on the individual taxpayer to provide accurate figures”.

In a previous article for AccountingWEB, a HMRC spokesperson labelled claims it was taking a harder line on penalties to raise revenue were “nonsense” and a “routine refrain about everything we do. It has nothing to do with raising revenue.”

Replies (13)

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By Moonbeam
04th Apr 2016 11:37

Makes me very angry

Why don't HMRC focus heavily on giving much more help to people who just want to fill in their own tax return? In case of the chargeable gain HMRC were automatically sent this info by the insurance company.

The idea of careless errors may well apply to a trained accountant, but bearing in mind the confusion in the minds of my most intelligent clients about tax, carelessness is hardly a fair accusation to make of the ordinary person in the street making the many mistakes it's possible to make.
 

The reason so many taxpayers leave their tax return to the last minute is that they find the whole matter so confusing.

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By dgilmour51
04th Apr 2016 12:01

Well, they would say that . . .

... claims it was taking a harder line on penalties to raise revenue were “nonsense” ...

HMRC has more faces than a clock factory - the only thing you can be sure about when HMRC says anything is that it is designed to obfuscate and mislead - and will be 're-interpreted' as necessary if there's a chance of getting a fine out of it.

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By Homeworker
04th Apr 2016 12:32

Suspended penalties?

I had three almost identical cases last year of pensioners who had missed savings interest from their tax returns (not picked up by me because they were all chasing interest rates so had moved money around).

HMRC charged one a penalty, charged the second a penalty but suspended it and did not charge the third at all.  There is no consistency in their treatment.

I should have thought that in Graham's case at least, the penalties could have been suspended.

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By NYB
04th Apr 2016 12:48

Why don't HMRC get rid of "Genuine Error"

HMRC might as well get rid of "Genuine Error". No one ever seems to win on it. Might as well go in with "Careless" to begin with as that's what they deem all errors to be. I have been caught up in the same two years ago. Having been in payroll for twenty years with an unblemished record my one and only error was deemed "careless". Coiuld have a discussion on what;s the difference between Genuine and Careless/

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By Ian McTernan CTA
04th Apr 2016 13:06

Joined Up Thinking..

One of these cases highlights once again that HMRC don't use the information provided to them to prevent exactly this sort of error.

The chargeable gain is reported to HMRC when it occurs.  HMRC then have up to nine months after the end of the tax year to attach it to the correct record, then automatically amend any submission that doesn't contain it by issuing their calculation of the tax due.

Why doesn't the system work this way?  So HMRC can charge penalties?

It's the same farce when dealing with the tax credit department, or the pensions department, or any other department- none of which can access the right information as none of the systems can talk to each other.

 

 

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By mgunn
04th Apr 2016 13:06

Careless errors

The truth is that HMRC have made the tax system as complicated as they possibly can and have thrown all the burden of understanding it on the taxpayer as if it is his job to spend time becoming an expert in it all. Woe betide him if he doesn't succeed in that, or simply is not up to task of  understanding it, as they won't lift a finger to help anybody. The standard response is always read our manuals for any guidance you want. Their job is just to sit back, let the taxpayer make mistakes and then they can swoop on him with a penalty. Its no wonder people see it all as a money-raising game. If they don't want it to be that, why won't they provide some real help to the bewildered taxpayer?

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By cfield
04th Apr 2016 13:33

Culpability should be a factor in mitigating penalties

Maybe the definition of carelessness should be set higher for people dealing with their own tax affairs, especially those doing it for the first time. It sounds a bit rough on these people. First-time offences should be dealt with a bit more leniently. After all, an unblemished record should count for something.

They should also make allowance for the way the error was made. In short, how "careless" it was. A simple mistake like entering a net figure for pensions instead of gross can have an effect out of all magnitude to the extent of the carelessness.

I accept they should recognise the amount of tax at stake in levying penalties, so the tax-gearing is right in principle, but maybe the culpability of the taxpayer should be a factor in determining the available reductions for the penalty, along with "telling, helping and access".

It seems odd in these 2 cases that HMRC didn't just suspend the penalties. They are allowed to do so for careless errors as opposed to deliberate inaccuracies and must consider that in such cases if requested to do so. I'm surprised the Tribunals weren't asked to decide on this, but maybe they were and you just haven't mentioned it.

The other thing that always seems unfair is that HMRC never have to pay for their own careless errors. You might get fobbed off with £100 for distress caused, but no tax gearing for us. It's one law for them, another for us.

Lastly, how about showing a bit of respect Accountingweb and referring to these unfortunate people as Mr Graham and Mrs Bryson. After all, they are not criminals. Just think how embarrassing it must be for them not just to find their names on the internet (unofficial naming and shaming) but also in such a disrespectful way.

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By vstrad
04th Apr 2016 14:08

Just how complicated ...

Just how complicated does the tax code have to become before the presumption underlying Self-Assessment, that the ordinary citizen can handle his tax affairs without having to pay for professional help, becomes unrealistic, unfair and untenable?

Just askin'.

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By Steve99
04th Apr 2016 17:04

careless errors
Both penalties should have been suspended, as conditions could be set for both error. The one with the wrong figures is easily set "you will ensure thatyou use the gross figures bbottle net". The second, even though a one off there was a tribunal (sorry can't remember the name) that set the condition that the taxpayer gets an accountant to review the return. I woukd suggest both put an appeal in to the upper tribunal fir the penalties to be looked at again.

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By keithas
05th Apr 2016 13:49

Bereavement

"But, the judge added, “the period of nearly nine months from the date of [Bryson’s] husband’s death to the date the tax return had to be submitted the gap was too long and that this remedy was not an option open to the Tribunal”."

I wonder if this judge has any experience of bereavement.

After the death of my father, it took well over a year, plus increasing doses of antidepressants, for my mother to even begin to recover. I don't have enough experience to know whether this is a typical reaction but I am absolutely certain that no-one could make the statement above without a professional assessment of the individual involved.

How sad that we have reached the point of penalising the elderly and bereaved.

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By NYB
05th Apr 2016 16:07

Judges

Don't start me off about Judges. In my case the Judge & HMRC were well known to one another.They spent 15 minutes closeted together before the hearing started. HMRC presented a bundle on the day of numerous pages that we were given 10 minutes to read and digest. Then we asked for an adjournment and HMRC said there was nothing in the supplementary bundle of importance (why produce it then unless it helps their case). Case carried on. We lost. Then got home and digested the bundle to find there were things we would have commented on. Felt it was decided before we even got started. Sorry - gone off at a tangent

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Replying to NH:
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By DenholmHay
08th Apr 2016 07:58

Judges

I've had exactly the same before where HMRC and the judges were chatting away to each other like old friends. We had something like 50 interruptions by the judges - HMRC had none. We could see from the start that we had lost. The calibre of judges in the 1st Tier is a very low standard in our view.

 

In terms of penalties HMRC are taking advantage all the time. We have one case where we took on a forestry worker who had registered for tax about 3 years ago. He didn't earn anything for 2 years and had moved to stay with his girlfriend. Eventually when he received his mail he was on daily penalties. He then quickly submitted estimated tax returns and estimated how much tax he had already paid. This was found to be over-estimated with the result that another £340 in penalties were applied.

 

The result? He owes £2,800 in penalties but, of the 12 other forestry workers who were intending to be bona fide - none of them are now registering for tax as they've seen what happened to their colleague! 

 

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By Anthony G Thorne
05th Apr 2016 20:39

Dave Hartnett admitted that it was not possible for any one person to understand the whole of the UK tax code the primary legislation runs to over 21,000 pages plus the extra statutory concession, statutory instruments etc.  Students are not educated on basic tax principles so should it not be that that the fault lies with the Government if a mistake is made and therefore the first time a mistake or error is made there should be no penalty?

 

Or

 

Is it not time for a complete change to the tax system working on the KISS principal.

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