Tax returns: HMRC clamps down on ‘careless’ city tax errors


Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Tax returns: HMRC clamps down on ‘careless’ city tax errors

“To err”, wrote the English poet Alexander Pope, “is human”.

Glancing over the latest HMRC annual report, which was published this July, one might add that it’s also hugely expensive.

According to the Revenue’s figures, a £9.2 billion chunk of the £33 billion ‘tax gap’ is due to what it describes as “avoidable mistakes” in tax returns and claims.

The “failure to take reasonable care” in preparing and filing tax returns accounts for almost two-thirds (£5.9 billion) of that sum, while the rest (£3.2 billion) is made up of “errors”.


Description of behaviourEstimate amount of lost revenue
Failure to take reasonable care£5.9bn
Criminal attacks£5.4bn
Legal interpretation£5.3bn
Tax evasion£5.3bn
Hidden economy£3.2bn
Tax avoidance£1.7bn

Indeed, and perhaps surprisingly to many, it is hugely more significant than the level of tax avoidance (which is cut adrift at the bottom of this table) in the economy.

Given that more than 40 per cent of the difference between anticipated and actual tax income is attributed to small businesses, you might imagine that much of the shortfall is because of a fair few SMEs making relatively innocent errors when submitting their accounts.

Nevertheless, with HMRC determined to shrink the ‘tax gap’ as much as it can, it’s unsurprising to find that the taxman is eagerly pursuing the outstanding amounts.

What is perhaps unexpected is that some of the country’s biggest businesses have been fined for their failing to adhere to the Revenue’s standards.

One recent report based on data disclosed through under a Freedom of Information (FoI) request has found that 199 fines were issued to companies whose tax affairs are managed by HMRC’s Large Business Directorate (LBD), the division which has responsibility for more than 2,000 of the country’s biggest enterprises.

In all, some £59 million was recouped in this way – an average fine of a little under £300,000.

Even though that’s some way short of plugging the entire hole in HMRC’s results due to mistakes, it illustrates that the Revenue is simply not off letting those committing these errors in tax returns and other documents.

I believe that’s due in part to HMRC changing how it defines and treats such carelessness only a couple of years ago.

Under amendments made to its Compliance Handbook and introduced in 2016, the Revenue draws clear distinctions between behaviour which is either ‘unprompted’ (ie, errors brought to its attention without it having to chase the taxpayers involved) and ‘prompted’ (that is a case in which HMRC has detected the mistake).

Within both of those classifications, there is a sliding scale of offences and associated penalties, ranging from 30 per cent to 100 per cent of the sum outstanding.

It underlines how, in the eyes of HMRC, there is a cost and consequence to every error.

That, of course, should be the case when the mistakes are the Revenue’s own.

Apart from the annual criticisms of its performance made by the House of Commons’ Public Accounts Committee, let’s not forget incidental failings, such as a faulty online calculator which meant some individuals missing out on the chance to save tens of thousands of pounds into their pension pots.

The relatively small sums accrued from some of the country’s biggest firms suggests what I’ve always believed: that most of the errors made in tax calculations are not deliberate but simple oversights.

Having a long and complicated tax code doesn’t make the likelihood of mistakes any less, even for companies which may have teams of individuals dedicated to handling accounts, so a little more understanding from HMRC is arguably in order.


If you have any queries about your tax returns or any compliance matters then please do not hesitate to get in touch. Further, our page dedicated to tax investigations can be found here.

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