There has been a 46% increase in the number of penalties imposed on taxpayers for ‘deliberate’ errors on tax returns to 6,125 in 2017/18, up from 4,183 in 2016/17, as HMRC seeks to maximise its revenues from tax investigations, says PfP, the specialist insurer.
‘Deliberate with concealment’ penalties allow HMRC to levy the highest fees on taxpayers of all categories of penalty. These penalties could result in a taxpayer paying a fine equivalent to 100% of the amount HMRC claims is due.
PfP says the sharp rise in ‘deliberate with concealment’ penalties reflects HMRC’s efforts to ramp up the amount of revenue it generates from its compliance work. Imposing these penalties enables HMRC to then subsequently track a taxpayer for years afterwards – potentially allowing for more revenue to be generated over the long-term.
PfP explains that HMRC accuses taxpayers of ‘deliberate’ behaviour if it suspects an error on a tax return was not made accidentally, or that a taxpayer knew of an error and didn’t correct it.
Small businesses may be particularly at risk of ‘deliberate’ penalties with HMRC recently revealing that it suspects 22% of SMEs are filing incorrect tax returns. This means potentially 1 in 5 SMEs
PfP says the total number of ‘deliberate’ penalties; including ‘deliberate with concealment’, hit 36,700 last year, up 8% from 34,100 in 2016/17 (see table below). The number of penalties has now more than doubled from 14,400 five years ago.
Kevin Igoe, Managing Director at PfP, says: “HMRC is increasingly using penalties for ‘deliberate’ errors as a tool to fill its coffers.”
“HMRC can levy significant charges through accusing taxpayers of making ‘deliberate’ errors on their tax returns, which improves the overall return on its compliance work. However, in HMRC’s hunt for revenue, ordinary taxpayers are becoming collateral damage.”
“The number of ‘deliberate’ penalties imposed has been increasing for several years now. This rise coincides with a fall in penalties imposed for ‘careless’ errors, which tend to result in a less severe fine. Indeed, the rise in ‘deliberate’ penalties doesn’t necessarily mean a rise in errors.”
Number of penalties for ‘deliberate with concealment’ has increased the fastest