Insights

It has been reported in the Financial Times that HMRC is seeking new powers to obtain information about individual taxpayers from financial institutions without first justifying their reasons and requesting approval from the Tax Tribunal. If these new powers are obtained, HMRC will be able to request information directly from financial institutions without necessarily having concrete justification for doing so. Currently it is necessary for HMRC to request tribunal approval, which ensures they must explain their reasons for requiring information; it will enable them to obtain information as part of a ‘fishing exercise’ into a taxpayer’s affairs, should they choose to do so.

Under existing rules outlined within the Common Reporting Standard, overseas banks and financial institutions already automatically exchange information about taxpayers and have done so for some years. These latest proposals would give HMRC identical powers to obtain information about taxpayers directly from UK organisations. The ability to seek information without prior approval will widen HMRC’s powers considerably and will mean they are more likely to uncover taxpayer errors; they will then go on to decide whether they consider those errors are deliberate.

Legislation sets out that it is a taxpayer’s responsibility to take reasonable care to:

1. a) maintain adequate records to be in a position to submit accurate tax returns;
2. b) be aware of tax and compliance obligations and to seek professional advice if required; and
3. c) either complete the required returns with due care and attention or seek assistance from a professional advisor if necessary.

When mistakes are made on a tax return, being able to demonstrate the mistake was not made deliberately and that the taxpayer acted with reasonable care can be difficult, and the rising number of penalties imposed by HMRC suggests this is the case too. Where a taxpayer is unable to demonstrate that they took reasonable care in completing their tax returns, the penalty charge can be up to 30%, rising to 100% if HMRC feel it was a deliberate error.

Accusations of deliberate error appear to be on the rise and HMRC have reported that almost a quarter of SME business owners are suspected of submitting incorrect tax returns, which demonstrates the importance of accurate record keeping.  According to HMRC data, 6,125 taxpayers faced paying the maximum penalties for making ‘deliberate errors’ in the 2017-18 tax year, compared with 4,183 in the previous year.  Of this number, a significant proportion are likely to be small business owners and HMRC have admitted they may be at a higher risk of being targeted should these changes come into effect.

If you have any concerns about your tax return and think you might have made a mistake, please contact us to discuss your circumstances. It may be beneficial to make a voluntary disclosure to HMRC, rather than waiting for an error to be detected.

Contact partners@rjp.co.uk for a confidential discussion.