Bob Jones of Internet Taxation and a member of Hardhatter's panel of experts writes:

Bob Jones

“There is evidence that HMRC are charging penalties incorrectly on conclusion of investigations. This was a disturbing trend that I noticed before I retired and I have seen further evidence since.

“I am not talking about large investigations involving fraudulent conduct. I am talking about investigations that involve employees - the man in the street – those which could involve individual members of Hardhatter. Self assessment is exactly what it says – it puts the entire responsibility on the individual to get it right and if they don’t then they have to face the consequences. Self assessment is 'process now/check later' and individuals who thought their return had been accepted can find themselves subject to enquiry some considerable time after the event.

Negligence
“The fact that a person files an incorrect return, statement or account does not on its own attract a penalty. HMRC must establish that the incorrect return etc was submitted fraudulently or negligently by the taxpayer, but there is evidence that they are not doing this in every case. Negligence is generally regarded as being an omission to do something that a reasonable man would do or doing something which a prudent and reasonable man would not do.

“Where a person understates or fails to declare a source of income then it would be difficult to say he has not acted negligently. However, for example, with travel expense legislation that includes terms such as “reasonable to assume” - “substantial” - “significant” it is no wonder that there are differences of opinion. Where an investigation hinges on a difference of opinion or a less than clear point of law can HMRC really justify a penalty on the basis of negligence? There is evidence, however, that, on occasions, they are doing just this by charging a penalty as a matter of routine without examining the reasons behind the error.

Agent
“Where the taxpayer engages an agent to act on his behalf HMRC has to establish that return was submitted negligently by the taxpayer. That does not mean to say that a taxpayer can always hide behind the agent. An individual cannot delegate his responsibilities to another and cannot simply explain away errors or omissions on the poor work of an accountant as it is the taxpayer himself who signs the return as being correct and complete.

"Furthermore if, for example,. the taxpayer provides the agent with incorrect information, or fails to inform the agent of a source of income, then it is the taxpayer who is negligent and a penalty is appropriate. However, if an agent places an interpretation on a point of law or is insistent that a certain expense is allowable is it negligent if the taxpayer believes him? I have seen cases where HMRC seem to assume that to be a case of negligence on the part of the taxpayer.

“HMRC guidance to its own employees is that to impose a penalty it is necessary to establish the submission of an incorrect tax return giving rise to a tax difference and, at least, a lack of reasonable care by the taxpayer in submission of that return. They say that absolute proof is not essential with the standard of evidence being the balance of probabilities. If you feel aggrieved at the charging of a penalty the matter can be referred to the General Commissioners who meet locally on a regular basis. The meetings are generally informal and there is no charge other than professional fees if you are represented. If the penalty is small, however, professional representation may outweigh any potential savings.”

Bob Jones
Internet Taxation

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Susie Hughes
The Editor © Hardhatter 2006