Defense against HMRC penalties for careless errors

Defense against HMRC penalties for careless errors

So you think you might have made an error in your tax return – you’re feeling a bit nervous and think that it might come back to bite you – tax return penalties for errors are no laughing matter.

You’re not alone in that feeling. The tax man is increasingly going after easy prey. Google, Amazon and Starbucks have an army of lawyers and accountants behind them, not to mention the economic threat of rearranging their business to pay even less tax – its not easy pickings for an underfunded HRMC.

Small businesses on the other hand – well there’s lots of them, tax is super complicated and its easy to get it wrong. Like lions in a David Attenborough documentary, its simply so much easier to pick off one of the herd, than to take down an elephant!

Between 2013 and 2015 HMRC increased the number of penalties from around 5000 to 15000! That’s right a 200% increase. They are increasingly taking a hard line approach claiming more and more errors are “deliberate”, rather than “careless”.

This matters, as a careless error can be reduced to a nil penalty, whereas a deliberate penalty starts at 20% and can go up to 100% of the tax owed.

If they do find an error, the position you really want to be in is that you took “reasonable care”.

Reasonable Care

Lets get one thing straight – HMRC CANNOT repeat CANNOT impose a penalty if an error has taken place despite the tax payer having taken reasonable care (FA 2007, sch 24, para3(1)(a). This point is so important I’m going to say it again

HMRC CANNOT impose a penalty if an error has taken place despite the tax payer having taken reasonable care.

Reasonable care – the holy grail of errors! So how to you achieve this vaunted position?

Well, for starters, we, as Chartered Accountants, would recommend not making any errors in the first place, but we recognise that given the mind boggling complexity of the tax system, this is not always easy.

There is, however, one way that makes it easy to achieve reasonable care status:

Where a tax payer relies on appropriate advice from a professed expert it would almost always be reasonable to rely on that advice provided that the person selected a seemingly competent professional (such as, say, a Chartered Accountant) unless the person knew of factors that indicated the the advice ought not to be relied upon.

In this case, the tax payer would be deemed to have taken reasonable care.

This principle has been tested in law numerous times (Carrasco vs Revenue and Customs [2016] UKFTT 731 (TC), Mariner VS HMRC [2013], Hanson vs Revenue and Customs [2012] and Gedir vs Revenue and Customs [2016]) and the courts and tribunals appear to look sympathetically on tax payers who have sought the appropriate professional advice

Protection against possible penalties

The point of the above is this:

By engaging a Chartered Accountant, you get more than just good advice, tax saving strategies and a professional service. You get PROTECTION. By relying on us your chances of being considered as having taking “reasonable care” should anything arise in the future is greatly increased.

Peace of mind is important. Confidence that your affairs are in order is valuable; that there is not something “out there”, no a ticking time bomb waiting to explode: We think that’s as good a reason as any to want to engage an accountant.

With the increase in cloud technology, and different methods of working, hiring an experienced qualified accountant has never been more affordable.

If you’re interested you can find out The Accounting Studio keep its fees affordable without sacrificing service quality, and if you want to see exactly how low our fees can be, check out our quotes for individuals or quotes for companies – its a free online quote generator, so feel free to play around with it

So to buy yourself a ticket to tranquilville; consider hiring an accountant like us, so you can get on with the rest of your life safe in the knowledge that you’re in safe hands!


Its worth pointing out that this reasonable care defence does not apply to obviously wrong advice, or to certain aggressive tax avoidance schemes. Nor does it apply where the adviser is relying on incorrect information from the tax payer

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