Contractors, don’t rely on the Oliver Hampel case to help you out of an HMRC penalty
It’s not hard to imagine limited company contractors being rather pleased a director has overturned all but £500 of £2,600 in HMRC tax penalties, but a word or two of warning is more appropriate than cheering, writes former tax inspector Carolyn Walsh, managing director of CWC Accounting Solutions.
Are you in a coma? Then you've got a reasonable excuse
In fact, putting the unique case of Oliver Hampel v HMRC slightly aside, contractors should note that there are today very few reasons that succeed in stopping HMRC penalties being charged. Being in a coma is of the few acceptable reasons. And no, I'm not kidding!
Missing a deadline, not reporting income correctly or overclaiming expenses will all lead to a tax debt and penalties. Why? Because HMRC has laid out all the information and guidance that most taxpayers need to comply with their requirements, like filing on time.
Typical taxpayer-taxman talk
So more often than not when a self-assessor misses the deadline, the conversation on the HMRC helpline will go something like this:
Taxpayer: “I didn't know that I had to file a tax return.”
HMRC (out loud or internal): “That's not really an answer.”
It might interest contractors to know because it’s a sign of how important the Revenue takes your filing obligations, the tax authority actually uses a behavioural assessment of a taxpayer’s failure to provide an accurate tax return on time, following an investigation into them.
Represented or not, contractors should always remember, the only fail-safe way to avoid an HMRC penalty is to do absolutely everything right, both with and on your returns, and follow all the written guidance available on HMRC .gov.
Only a few escape HMRC penalties nowadays
But because doing all that is much less straight forward and achievable than it might sound, only a few taxpayers who don’t properly provide a tax return to HMRC will escape a penalty nowadays.
Leaving aside people who take evasive action or lie about income and expenses on their return (and it should be emphasised that Mr Hampel did none of these things), most people who just get it wrong are going to fall into the ‘careless’ category. Unfortunately, that category lands a taxpayer who ‘failed to take reasonable care to get things right’ with up to a 30% penalty on top of the amount of tax owed.
Reasonable care, responsibility, and 'reducing your penalties bill'
Failing to take ‘reasonable care’ in HMRC’s eyes will even include you not looking up an issue on the HMRC .Gov website, where there is guidance on almost any matter relating to a taxpayer’s many responsibilities. Those responsibilities obviously double if you have both personal and company taxes to pay.
Getting a good accountant to help you is advice worth heeding. But bear in mind, all taxpayers are responsible for their own tax affairs, and where there is confusion, or ignorance or a case of simply ‘letting things slide’, it needs to be recognised by us all that HMRC is going to class this as ‘careless’ behaviour, which inevitably causes tax debts to increase. Perhaps by nearly as much as one third.
This is the warning I give to anyone trying to be slapdash on their tax affairs. And this HMRC penalties factsheet that lists endless ways to potentially REDUCE your penalty is not all that helpful, because the reality is that despite the rather fortunate outcome for Mr Hampel, there is VERY SMALL ROOM TO MANOEUVRE YOUR WAY AROUND HMRC PENALTIES. Being acutely aware of this fact is among the best preventors for getting landed with one in the first place.