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HMRC increasingly fining people for ‘deliberate errors’ – penalties up 19%, 34,000 hit

  • HMRC officers driven by need to collect more from taxpayers as tax gap widens
  • Penalties allow HMRC to monitor a taxpayer’s affairs for years afterwards

The number of penalties HMRC imposed on taxpayers for ‘deliberate errors’ on tax returns rose 19% to 34,100 last year, up from 28,700 in 2015/16*, as HMRC looks to squeeze more revenue from its compliance work, says PfP, the UK’s leading provider of tax support and insurance.

HMRC imposes penalties for ‘deliberate behaviour’ when it believes an inaccuracy on a tax return was made intentionally, or that a taxpayer knew of an inaccuracy and did nothing to correct it.

Deliberate penalties allow HMRC to charge a much higher fine than the other category of penalties – for ‘careless behaviour’**. A taxpayer may also be ‘named and shamed’ by HMRC.

The rise reflects pressure on HMRC officers to collect more revenue by imposing bigger penalties and does not necessarily mean more people making deliberate errors. Last year, the tax gap, which is the difference between the amount of tax HMRC thinks it is due and what it actually collects, increased by £1bn to £34bn, up from £33bn in 2014/15.

PfP says imposing a penalty for deliberate behaviour allows HMRC to then subsequently monitor a taxpayer’s affairs more closely for several years – a decision the taxpayer cannot appeal. As a result, these penalties can enhance HMRC’s chances of generating additional revenue from the same individual.

The penalties imposed last year for ‘deliberate errors’ are broken down into two different types:

·      Penalties for ‘deliberate behaviour without concealment’; imposed for overstating business expenses and understating income, increased by 19% to 29,900, up from 25,200 in 2015/16;

·      Penalties for ‘deliberate behaviour with concealment’; when HMRC believes active steps have been taken to hide errors, rose 21% to 4,200, up from 3,400 over the same period.

Kevin Igoe, Managing Director at PfP, says: “Penalties for ‘deliberate errors’ are the latest weapon to be used by HMRC in its relentless hunt for extra revenue.”   

“The jump in penalties for deliberate errors coincides with a fall in those imposed for ‘failure to take reasonable care’, which tend to result in a less severe fine.”

“It is difficult to reconcile this increase with HMRC’s stated policy that the objective of raising penalties is not to collect extra cash but to encourage good behaviour in the future.”

The number of people HMRC has penalised for ‘deliberate errors’ has increased three years in a row – number of penalties 

HMRC penalties

*Data provided to PfP by HMRC, 2017

**The size of penalty that can be charged for ‘Careless’ behaviour ranges from 0%-30% of Potential Lost Revenue (PLR), i.e. underpaid tax, whilst for ‘Deliberate’ behaviour it ranges from 20%-100% of underpaid tax