Penalties for inaccuracies – Prompted and unprompted disclosure by Rebecca Benneyworth
This week I have been taking a look at the penalty reduction rules which replace the old concept of mitigation.
The old penalty system in relation to direct tax generally prescribes a penalty of up to 100% of the tax lost, which is then mitigated for size, gravity, disclosure and co-operation. This process ends when the new regime commences (although note that the commencement is return driven, so there will still be penalties around under the old rules for some time to come yet).
Continued...
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Interesting question
Clint. I won't answer directly, but just add some more detail. The guidance on reasonable care when there is uncertainty indicates that when a taxpayer is unsure about something he should seek clarification, but if he remains unsure then he should disclose the uncertainty on the return. (CH 81120) If he does this, he has satisfied the reasonable care test. By extension I think this also applies when an agent is acting.
I think this (the uncertainty issue) goes more to the Langham Veltema guidance than the issue of discloure described above. Disclosure here supposes that the taxpayer has now discovered an inaccuracy on a return which was not apparent when the return was submitted - otherwise of course the inaccuracy is not a mistake but a deliberate understatement!
Will the new legislation affect my own disclosure policy? You bet! At the moment it feels a bit like Langham Veltema on steriods! I am extremely conscious about the additional penalty implications of disclosing uncertainty - in addition to the normal discovery issues.
What white space
For those of us using 3rd party software to complete a return, we have the ability to make notes in a white space, but have you seen a paper return sent to all those unrepresented tax payers - the white space has gone!!
On another point, when completing a clients 2008 SA, I noticed an error in share information for an earlier sale in 2003 and advised the client that we would need to disclose the error, and have file notes on the discussions. Days before I wrote to HMRC, they enquired into the CGT (property transaction) in the 2007 return. I await with interest if they try and argue their enquiry prompted our disclosure!!