It’s fair to say that in the world of sport, the decision of the referee to give a penalty can be contentious. Unfortunately for the team that feels it has been wronged, in most sports, the ref’s decision is final. If a penalty is scored against them, they have to live with the consequences, even if it costs them the game.
In the tax world, HMRC is the referee and as such, it decides whether a penalty for alleged wrong doing should be imposed, and how much it should be. Fortunately for taxpayers, HMRC does not necessarily have the final say on whether a penalty should be imposed, or the quantum of it. The first tier tax tribunal recently heard a case where it decided that HMRC had been too harsh in imposing a penalty that was levelled at 75% of the tax due. HMRC had decided that the error committed on a VAT return had been both deliberate and concealed. Where this is the case, they can impose a penalty of between 50 -100% depending on the level of co-operation they receive from the taxpayer. As a result of what he heard, the tribunal Chairman felt that the error made had been a careless one rather than deliberate. This reduced the possible range of the penalty to between 15-30%. He further felt that, once the error had been discovered by HMRC, the VAT inspectors received much more help from the taxpayer than they were being credit for, hence the level of reduction of penalty due.
Why is this case important? Because it illustrates that HMRC may well be too ready to impose a high level of penalty when it cannot prove that such a level of penalty is justified.
If HMRC is seeking to impose a tax penalty on you, it really is worth considering if anything can be done to fight it. Should you wish to discuss your situation, please do not hesitate to contact a member of our tax team on 0845 177 5500 or by using our on-line contact form