What is reasonable care

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What is reasonable care

The inaccuracy penalty system is intended to make penalties simpler to understand and more consistent across many taxes. HMRC has the power to significantly reduce the amount of penalties due. The largest reductions are for unprompted disclosures (as against prompted disclosures). The penalties also vary depending on the taxpayers’ behaviour. HMRC has 4 levels of behaviour ranging from taking reasonable care in dealing with errors to careless, deliberate or deliberate and concealed behaviour patterns.

There is no definition of taking reasonable care from a taxation standpoint. However, HMRC’s commentary in this area is helpful. HMRC accepts that 'reasonable care' cannot be identified without consideration of the particular person’s abilities and circumstances. HMRC recognises the wide range of abilities and circumstances of those persons completing returns or claims and accepts that what is necessary for each person to discharge that responsibility has to be viewed in the light of that person’s abilities and circumstances.

HMRC gives the example of not expecting the same level of knowledge or expertise from a self-employed, un-represented individual as we do from a large multinational company.

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What is reasonable care?

HMRC expects that taxpayers take ‘reasonable care’ over their tax affairs and do everything reasonably within their power to ensure that tax returns and other relevant documents are accurate.

There is no legal definition of reasonable care from a taxation standpoint and HMRC will take your individual circumstances into account when considering whether you’ve taken reasonable care. HMRC generally accepts that ‘reasonable care’ cannot be identified without consideration of a particular person’s abilities and circumstances.

For example, HMRC would not generally expect the same level of knowledge or expertise from a self-employed unrepresented individual as they do from a large multinational company. There are special rules that apply when considering what is reasonable care for inaccuracies relating to avoidance arrangements occurring on or after 16 November 2017.

There are penalties for inaccuracies made across all taxes. The penalties can range from 0% where a taxpayer has been found to have taken reasonable care but nonetheless an incorrect return is submitted, up to 100% of the tax where an error is deliberate, and the taxpayer attempts to conceal it.

Planning note

HMRC has the power to significantly reduce the amount of penalties due. The largest reductions are for unprompted disclosures (as against prompted disclosures). The penalties also vary depending on the taxpayers’ behaviour. HMRC has 4 levels of behaviour ranging from taking reasonable care in dealing with errors to careless, deliberate or deliberate and concealed behaviour patterns.

If you are concerned that you may have a reasonable excuse defense and are unsure how to appeal decisions made by HMRC, please call for advice.

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