Inaccuracy penalties are charged when a taxpayer makes an error on their tax return or provides inaccurate information because of their carelessness, leading to underpaying tax. These penalties are calculated based on the additional tax owed due to inaccuracy and can range from 0% to 100% of the extra tax owed. The exact percentage depends on the type of inaccuracy (carelessness, recklessness, or deliberate errors) and the case’s circumstances.
When making errors on your tax return, there are three levels of culpability: careless, deliberate, and deliberate and concealed.
For unprompted disclosure, being careless can lead to a penalty of 0% to 30%. On the other hand, deliberate and concealed errors can result in a penalty of up to 100%, and deliberate errors can result in a penalty of 20% to 70%.
For Prompted Disclosure, penalties increase to 15%, calculating 15% to 30% for carelessness and 35% to 70% for deliberate and concealed errors, and will be calculated as 50% to 100%.
How to Avoid Inaccuracy Penalties
The best way to avoid error penalties is to take the time to carefully review your tax return before submitting it. Double-check all figures and ensure that all information is accurate and up-to-date. If you’re unsure about something, seek advice from a tax professional or use HMRC’s online help resources.
In addition, it’s essential to notify HMRC of any changes in circumstances as soon as possible. This will help ensure that your tax liability is correctly calculated and prevent the need for a costly penalty.
If you do receive an inaccuracy penalty, don’t panic. You can appeal the decision and provide evidence to support your case. If you show that the error was due to an honest mistake or misunderstanding or that you took reasonable care to ensure accuracy, HMRC may waive or reduce the penalty.
Error penalties can be a costly and stressful consequence of making mistakes on your tax return. However, by taking a proactive approach and seeking advice when needed, you can reduce the risk of errors and minimise the impact of any penalties that may arise. Remember to double-check all information, notify HMRC of any changes in circumstances, and seek advice when needed. With some preparation and attention to detail, you can ensure accurate tax returns and avoid costly error penalties.