Revenue increases fines on self-assessment tax returns

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The Independent Online

Taxpayers who mis-state their income on self-assessment tax returns will face much higher penalties following new measures introduced in the Budget, it emerged yesterday.

Accountants warned that the 2008 Finance Bill would give HM Revenue & Customs the power to levy fines worth 30 per cent of unpaid tax if taxpayers "fail to take reasonable care" in preparing their tax returns.

The penalties are not targeted at taxpayers who make a basic mistake when submitting their annual tax returns, but would apply in most cases when the amount of income declared on a self-assessment return proves to be an understatement of the money on which tax is actually owed.

Currently in such cases, the penalty is typically 5 per cent of the tax owed, a sixth of the new penalty, though the new provisions allow for lower fines if taxpayers come clean quickly when challenged.

The Budget small print also paves the way for much higher fines for taxpayers who deliberately fail to declare taxable income. The penalty in such cases will be 70 per cent of the total owed. There will also be a 100 per cent penalty for taxpayers who attempt to conceal deliberate omissions from their tax returns.

Frank Haskew of the Institute of Chartered Accountants said tax advisers were concerned about the measures because HMRC only finished consulting six days ago on proposals for the higher penalties – as well as other new powers, such as the right to conduct more frequent compliance checks.

"It's disappointing they've taken action so quickly, because it suggests they're paying lip service to that consultation," Mr Haskew said. "There are lots of concerns about the additional powers being awarded to HMRC, because in many cases it is very unclear how they will be applied."