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The penalties of getting tax returns wrong

In a couple of months’ time a new, fiercer penalty regime will be introduced to deal with anyone who files incorrect tax returns, warns Bob Senior

In a couple of months' time a new, fiercer penalty regime will be introduced to deal with anyone who files incorrect tax returns, warns Bob Senior

The British have a love-hate relationship with authority and legislation. We are often the first to enforce rules and regulations on various topics. But this enthusiasm for the letter of the law does not extend to taxes.

Historically the Government has often come up with wheezes to earn extra money from the population. And historically the population has jumped through hoops to avoid them. The number of blocked-up windows in old houses bears witness to this.

The faintly romantic view that avoiding paying the right amount of tax is all a bit of a game and that the tax office takes it all in good part is not shared by HM Revenue and Customs. HMRC has always had the ability to charge penalties when it finds that a taxpayer has submitted incorrect tax returns. The precise amount of that penalty has not always been consistent.

But from 6 April, a new, fiercer penalty regime is being introduced, which sets out a clear, consistent scheme based on the taxpayer's behaviour. It features four categories of behaviour, each with a potential level of penalty:

• innocent mistake – no penalty
• failure to take reasonable care – penalty up to 30% of the tax missed
• deliberate understatement – penalty up to 70% of the tax missed
• deliberate understatement with concealment – penalty up to 100% of the tax missed.

41219692But HMRC is keen to encourage taxpayers to clean up their act, so it will charge lower penalties if they simply own up or are co-operative. If that happens, the penalties will be lower (see box left).

So what does this mean for a typical GP?

The main areas where particular care is required relate to the proportion of motor expenses claimed, the use of the home as an office and any payments to spouses for secretarial assistance. So simply making

a wild guess about the proportion of motor expenses that relate to business would at best result in a 15% penalty if HMRC picked it up. If it felt the error went beyond failing to take reasonable care and fell into the category of ‘deliberate understatement', the penalty would be 35%.

If a problem were picked up, HMRC could look back up to six years, and this would result in some pretty unpleasant interest charges as well as the penalties.

It should be appreciated that a partner's professional expense claims are technically part of the practice accounts and not completely personal to them. It is quite likely, therefore, that if one partner's professional expenses were found to be faulty, all the other partners' claims would go under the microscope. If you were the guilty party, you'd become really popular with your partners.

The good news is that the new penalty arrangements do not come in until 6 April, so there is ample time for GPs to make sure their professional expense claims for the year to 31 March are carefully prepared.

Bob Senior is vice-chair of the Association of Independent Specialist Medical Accountants and director of medical services at Tenon, the UK's third largest medical accountant

HMRC is introducing tougher penalties for those who get their tax returns wrong How the new penalties can be reduced

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