Tax returns

New measures could lead to penalties

Taxpayers could pay penalties of up to 30 per cent of any unpaid tax if they mistakenly mis-state their income in self-assessment returns, according to new measures introduced in the Budget.

HM Revenue & Customs (HMRC) will be allowed to levy the fines if taxpayers ‘fail to take reasonable care’ when preparing tax returns, the Budget documents have revealed.

The new penalties are initially for errors on returns and documents for VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme. Self Assessment taxpayers are affected.

For these taxes, the new penalties apply to returns or other documents for return periods starting on or after 1 April 2008 that are due to be filed on or after 1 April 2009.

The penalties will not apply to basic errors, but HMRC has cast the net wider than before so that penalties will apply to most cases when money is income and has been understated.

In brief

• if people take reasonable care when completing their returns but still make a mistake, they will not be penalised

• if they do not take reasonable care errors can be penalised; the penalties will be higher if the error is deliberate

• disclosing errors to HMRC early will substantially reduce any penalty due