In this section:
- Understanding penalties - agents and advisers
- How enquiries work for agents, advisers and your clients
- Appeals and tribunals – an overview for agents and advisers
Understanding penalties - agents and advisers
It's in everyone's interest to avoid penalties for late filing, late payment or problems with returns, paperwork and tax calculations. Understanding how the systems for penalties work can help you to help your clients before any penalty may become due.
Each tax has specific rules on penalties for late payment or filing.
For errors related to returns and payments for Income Tax, National Insurance contributions, Capital Gains Tax, PAYE (Pay As You Earn) for employers, Corporation Tax and the Construction Industry Scheme (CIS), a new penalty system is effective for returns covering periods that start from 1 April 2008 and filed after 1 April 2009.
The new system - which will cover most other taxes, levies and duties in the future - means that any penalties may be reduced if your client has taken 'reasonable care'. And if you tell HM Revenue & Customs (HMRC) about any problems in good time, penalties may be reduced or suspended.
On this page:
- You and your client's responsibility for penalties
- Penalties for late filing or late payment
- Penalties for errors on returns, payments and paperwork
- What 'reasonable care' means
- How penalties will be calculated
- Disclosures
- Helping your client avoid penalties
You and your client's responsibility for penalties
When you are acting on behalf of a client, they still retain responsibility for their returns, calculations and payments.
Your authorisation as an agent allows HMRC to deal with you on your client's behalf, but any liability for penalties for late returns, late payments or any errors on paperwork legally remains with your client.
Penalties for late filing or late payment
Penalties for late filing of returns and paperwork or late payment differ according to which tax you are dealing with.
Self Assessment Tax Return deadlines and penalties
What counts as reasonable excuse when an online tax return is filed late
PAYE/National Insurance payments and deadlines
Missed VAT deadlines -penalties and surcharges
Late returns and late return penalties under CIS
Penalties for errors on returns, payments and paperwork
Penalties can be charged if there are errors on returns or other documents which:
- understates the tax
- misrepresents the tax liability
- your client doesn't tell HMRC when they have been under-assessed
For returns covered by a period that starts on or after 1 April 2008 and due to be returned after 1 April 2009, there is a new system for penalties that is linked to the reasons why the errors have occurred.
This system applies to all of the following:
- Income Tax
- PAYE for employers and National Insurance contributions
- CIS
- VAT
- Corporation Tax
- Capital Gains Tax
The new system is also expected to be extended to most other taxes and duties for return periods from 1 April 2009, to be filed on or after 1 April 2010. Meanwhile, penalties for other taxes and duties - as well as penalties on the above taxes relating to earlier periods and returns - will continue to be covered by the existing penalty arrangements.
Under the new system, if you or your client send in a document that contains a mistake, HMRC will charge a penalty if the error is:
- because of a lack of 'reasonable care'
- deliberate - such as intentionally sending incorrect information
- deliberate and concealed - such as intentionally sending incorrect information and taking steps to hide the error
If your client has taken reasonable care to get things right, HMRC will not penalise them, even if they make a mistake.
But if the error is a result of you or your client not taking reasonable care, HMRC will still charge a penalty. The penalty level is linked to the reason why the error occurred - and can be reduced if you try to put things right.
What 'reasonable care' means
Every individual or business is expected to keep records that allow them to provide a complete and accurate return.
However, 'reasonable care' is different according to each of your client's circumstances and abilities. For example, a client with relatively straightforward tax affairs may only need a simple system of record keeping that is regularly updated. A large business with complex tax affairs is expected to have a more sophisticated system that is well-managed.
Types of inaccuracy - What is reasonable care
Examples of failure to take reasonable care
How penalties will be calculated
If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error.
- If the error is careless, the penalty will be between 0 and 30% of the extra tax due.
- If the error is deliberate, the penalty will be between 20 and 70% of the extra tax due.
- If the error is deliberate and concealed, the penalty will be between 30 and 70% of the extra tax due.
Disclosures
The percentage of extra tax due that is charged as a penalty can be reduced if you or your client tells HMRC about the error. Further reductions may also be made depending on the quality of the disclosure. Penalties can be reduced by:
- telling HMRC about the errors
- helping HMRC work out what extra tax is due
- giving HMRC access to check the figures
More about penalty calculations from the HMRC Compliance staff manual
Helping your clients avoid penalties
As an agent and adviser, all of your actions will be geared towards avoiding problems and penalties.
You can give your clients more details about how the system will work so they can consider their record keeping arrangements and processes.
New penalties for errors in tax returns and documents (PDF 38K)
It's also a good idea to reinforce to clients that if they have any questions about their tax, and record keeping that they check with you for advice.
If you would like to know more about how the new system works, you can use the training module for HMRC staff.
New penalties for inaccuracies in documents and returns Awareness Learning
Detailed guidance is also available in the HMRC staff Compliance Manual, which will continue to be updated.
