What are the penalties for tax return inaccuracies?

Let’s imagine that – like so many other freelancers – you left last month’s self-assessment tax return a little too late. You seemed to get everything done in time, but now your bookkeeper has informed you that there were inaccuracies. The taxman’s penalty regime for such mistakes is just one of many reasons for getting Freelancer Accounting’s (http://www.freelanceraccounting.com) accountants for freelancers to help you with such a vital task. But what do you need to know if it’s too late?

Our accountants in Guildford would advise you that HM Revenue & Customs assesses penalties for incorrect returns on the basis of whether the error could be deemed negligent, concealment or a mistake. Failure to comply could land you with a £300 fine, or you could even end up paying £60 a day if the error is not corrected. Tax-geared penalties exist for those that fail to comply in an attempt to pay less tax, while if you have gone as far as concealing and/or destroying documents, you could be in danger of a prison term of as long as two years.

You may want to disclose the error to HMRC of your own accord – a process known as ‘unprompted disclosure’ – or you may be the subject of ‘prompted disclosure’, which is when HMRC approaches you. In both cases, prospective clients of our accountants in Richmond should be aware that penalties apply, but that they are higher if the latter category applies. The exact penalty depends on the type of error that was made, which may have been careless, deliberate but not concealed or even both deliberate and concealed.

Voluntarily informing HMRC of a careless error is obviously the eventuality that will bring you the minimum penalty, with between 0% and 30% potentially needing to be paid by you. In the event of a genuine error, you won’t need to pay a thing, but if you failed to take “reasonable care”, a penalty at the higher end of that percentage bracket can be expected. Meanwhile, depending on the seriousness, telling HMRC about a deliberate error, but which you did not try to conceal, attracts a penalty between 20% and 70%. For the final error type, one that was deliberate and that you also tried to conceal, voluntary disclosure is likely to mean a fine of between 30% and 100% of the “potential lost revenue”.

As for cases of prompted disclosure, simply careless errors result in 15% to 30% penalties, with genuine errors leading to no penalty at all. Errors that were deliberate but that you made no attempt to conceal equate to a penalty of between 35% and 70%, while deliberate errors that you did try to conceal are likely to bring you a fine of between 50% and 100% of the “potential lost revenue”.

Here at Freelancer Accounting (http://www.freelanceraccounting.com), our small business accountants would also remind you that these above penalties can be simultaneously enforced, which is even more reason to seek our services to help to eliminate errors in the first place.

Editor’s Note: Freelancer Accounting (http://www.freelanceraccounting.com) are represented by the search engine advertising and digital marketing specialists Jumping Spider Media. Email: info@jumpingspidermedia.co.uk or call: +44 (0)20 3070 1959 / +34 952 783 637.