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'Careless' Self Assessment Error

'Careless' Self Assessment Error

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A new client has had a 'Check of your Self Assessment tax return 2014' letter indicating an underpayment of tax and has been hit with a 15% penalty which the letter states 'we agreed that you are due to pay a penalty of....'

The taxpayer was not a client at the time and completed the 2014 Return himself. The only entries where employment income one of which had a tax refund per the P60. The client entered the refund as tax paid rather than refunded resulting in the underpayment (approx £5k).

Does this amount to a careless error as the taxpayer has declared the full income?

On receipt of the letter the client contacted HMRC themselves and agreed the error. It also appears that they 'agreed' the penalty. Does this change anything in relation to an appeal (if considered appropriate)?

Many thanks

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By mabzden
04th Sep 2015 12:23

Harsh... but fair?

I have to say it sounds careless to me.

An action is "careless" if it's something that a reasonable and prudent man (or woman) would not do. I would say a reasonable and prudent person would be able to fill in an Employment page correctly but you may take a different view.

However I don't believe your client has agreed and accepted the penalty. This is levied by HMRC, and can be appealed. Personally I would just write to the tax inspector and say the penalty sounds high and can they look at it again. But HMRC is probably putting this case in the "convenient and self-serving mistake" category and may not be too helpful.

Thanks (1)
04th Sep 2015 12:24

Careless?

It depends on your client. If he's a man of reasonable intelligence then it would be difficult to argue that it wasn't careless.

On the other hand, if he was an illiterate bungling fool, then a successful argument against careless could be made.

It's all about what could be reasonably expected of the taxpayer.

Thanks (1)
By DJKL
04th Sep 2015 12:34

Does that work?

SteLacca wrote:

It depends on your client. If he's a man of reasonable intelligence then it would be difficult to argue that it wasn't careless.

On the other hand, if he was an illiterate bungling fool, then a successful argument against careless could be made.

It's all about what could be reasonably expected of the taxpayer.

Does that work?

Has the reasonable man on the Clapham Omnibus alighted? If the penalty will apply based on  the abilities of the taxpayer (however they are to be tested) then a couple of my clients are pretty safe from penalties but a few are really in the firing line.

The scenario:-

"M'lud, I put it to you that my client is thick, really thick, thicker than.......... You may test this proposition by asking him anything, he will merely look blankly at you, mouth opening and shutting with no intelligible sound being emitted etc etc ." -now known as the Baldrick Defence.

Thanks (5)
04th Sep 2015 12:58

Works for me

The "I'm afraid that my client's an idiot" argument has worked very well for me in the past.

Thanks (5)
04th Sep 2015 13:04

Me too

lionofludesch wrote:

The "I'm afraid that my client's an idiot" argument has worked very well for me in the past.

Especially in cases where the only information entered on the return was information they were already in receipt of.

Thanks (2)
07th Sep 2015 13:34

Very true

cheekychappy wrote:

lionofludesch wrote:

The "I'm afraid that my client's an idiot" argument has worked very well for me in the past.

Especially in cases where the only information entered on the return was information they were already in receipt of.

This is a very valid argument - why didn't HMRC spot it?

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04th Sep 2015 13:06

not careless

If in time, contest the penalty.

I had a case where the client had completed his own SATR. His error was to key in a number incorrectly from his P11D. HMRC accepted no penalty due when I subsequently dealt with the enquiry. You do have to be reasonably firm with HMRC, though, to achieve this I think.

Thanks (1)
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By taxguru
04th Sep 2015 13:16

Try appealing on the following points provided it's not late:

1. The client was unrepresented, and filed the return himself. He honestly and genuinely believed the numbers that he put in to the tax return to be correct. It was an innocent mistake and therefore, a careless error. There was nothing deliberate about it (you could expand on this!).

2. In order to avoid recurrence of such careless errors in future the client has agreed  some SMART measures with you as follows;

a) He has appointed you as his tax adviser. (there are two FTT decisions that helps if you're an ACCA/ACA)

b) Every year you will issue him a comprehensive checklist of income, gains etc etc, so that everything is captured, and nothing is missed out.

c) The client will provide you with all the information per (a) above + his bank statement which you will reconcile.

d) After you've checked everything you will prepare the tax computation and will have the tax return filed off.

e) You will then issue a certificate saying to the best of your knowledge and belief......correct

3) On the above basis you may ask HMRC to suspend the penalty. During the suspension period if everything goes fine the penalty will be waived off.

Thanks (3)
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04th Sep 2015 13:31

Have you actually seen the return?

If it was submitted on paper then it is possible that HMRC input it incorrectly and / or the client's entry could be interpreted as a minus. 

I've still got my Sunday Times cutting from 2000 that states:- 

... some offices calculated more than 50% of bills incorrectly...

... Nationally the error rate runs at 27% ....

& most staggeringly:-

... After the negotiations the Revenue finally agreed to aim for a 75% accuracy rate this year - considerably higher than the initial target it proposed ...

Those of us that were around when SA came in will remember that we had to contact the Revenue almost every day getting them to correct their careless errors.

Can't remember them giving us 15% - 100% of the tax due.

 

Also don't believe the 'agreed the penalty' comment. I've had letters with that phrase when I've done no such thing!

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07th Sep 2015 10:38

And what exactly is the difference

between an error and a careless error?

After all, we all make mistakes - does that mean we're all careless ?

 

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07th Sep 2015 10:45

An error is a simple mistake that most people make from time to time. A "careless" error is what HMRC call it when they are a bit strapped for cash.

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By Mr_awol
07th Sep 2015 11:24

Taxguru has the answer. 

Taxguru has the answer.  Follow it to the letter and see if you can get the penalty suspended rather than cancelled.

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By Spriggy
07th Sep 2015 12:54

The demise of Self Assessment as we know it

And HMRC want to do away with the Self Assessment tax return and (presumably) the support of agents and advisers!  They want people to enter their earnings and expenses online as they happen.  Can you see a huge penalty trap opening up?  People like the gentleman referred to above just will not cope without an accountant or agent.

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07th Sep 2015 17:38

I would not accept this was careless or should attract a penalty

It seems to me that it would be very easy to enter a tax refund as tax paid - it's just a figure in the box and the significance of an R or - sign is easy to overlook.  After all how often does a P60 have a - sign or R on it. It would be difficult for a non-tax specialist to pick up on checking - they would be focussing on the figures.  Why didn't HMRC simply amend the return for the obvious error?  If you cannot get HMRC to accept that is was not careless (and they seem very unwilling to accept this), as suggested by other contributors, a suspended penalty is the way forward - and keep pushing for it - the tribunal cases and my experiences are in your favour.

Thanks (2)
08th Sep 2015 11:20

Can you actualy input an R into HMRC software?

I assume the taxpayer used HMRC software. I thought you couldn't actually input an R into HMRC software (I'm not certain - you'd need to check). In which case taxpayer has a very reasonable excuse.

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28th Nov 2015 11:11

Update

As an update to my original post the appeal has been upheld on the basis of prompt payment of the tax due because of the error and SMART measure agreed.

Thanks for the guidence.

 

Thanks (1)
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