HM Revenue and Customs (HMRC) is working on proposals that could mean taxpayers will pay up to 100% on fines. Taxpayers who fail to correct mistakes on their tax returns after being notified by the tax authority could face harsher penalties under the proposals, which have faced backlash.
Tax experts have warned that the proposals could expose freelancers, self-employed workers and property landlords to larger fines for innocent mistakes. Under the potential changes, HMRC would be able to treat an uncorrected error as “deliberate” if a taxpayer failed to amend it within a specified period following a formal notification.
The change would increase the maximum penalty for mistakes from 30% of the tax owed to up to 100%. HMRC would also be permitted to investigate up to 20 years of a taxpayer’s financial affairs rather than the current six-year limit that applies to non-deliberate errors.
HMRC currently classifies an error as deliberate if the taxpayer knowingly provides incorrect information on a tax return. The consultation proposes allowing HMRC to reclassify some errors if taxpayers do not take action after being notified, GB News reports.
However, taxpayers who have not received a similar notification within the previous six years, and who correct the error within the specified timeframe, would not be penalised.
Those who fail to act before the deadline could have the error reclassified as deliberate.
Nimesh Shah, of accountancy firm Blick Rothenberg, told The Telegraph: “Most people are not represented by a tax adviser and so taxpayers may genuinely not know when they have made an error and could find themselves exposed to higher penalties.”
He added that the UK’s tax system’s confusing nature could cause people to make mistakes without realising it.
A HMRC spokesman said: “We know most of our customers act in good faith and want to get their tax right. These proposals are designed to help minimise penalties for those who swiftly correct mistakes when we flag them and make the process of doing so quicker and easier.”
The consultation will remain open until early September. No implementation dates have been confirmed as of yet.