Tax return penalty guide handed to self-employed

Freelancers and other self-assessors who filed their tax return on time but with a mistake are being offered guidance on when they may be penalised, potential defences and how to appeal.

The guidance, reproduced below, has been issued by the Low Incomes Tax Reform Group to ensure that such taxpayers are aware of their duties – but also their rights.

“It is crucial to remain aware of your rights and [be] confident in exercising them,” said the group. “After all, anyone can make a genuine mistake – [and] HMRC have been known to make mistakes too.”

In Q&A format, the group’s three-part guidance is as follows:

How should HMRC decide whether I have been ‘careless’?

Your capacity to file a tax return may be dependent on your personal circumstances and abilities. For example, as their own official guidance states, they would not expect the same level of knowledge or expertise from a self-employed or unrepresented individual as from a large multinational company.

If HMRC have not contacted you to discuss things like your personal circumstances, background, experience with tax matters or how you prepared and checked your tax return, you will need to discuss with them how the error arose and might even need to formally ‘appeal’ the notice if HMRC do not seem to be considering fully your own ‘abilities and circumstances’.

In what circumstances could HMRC reduce my penalty?

Even if you admit to having been ‘careless,’ the penalty can be reduced if you tell HMRC that you have made a mistake, give them reasonable help in quantifying it and allow them access to records so that they can make sure it is fully corrected.

If you tell HMRC about your mistake before they know about it, they can reduce the penalty to zero. If HMRC point it out to you, the minimum penalty they can charge you is 15%.

When and how can I formally appeal against a penalty?

You can choose whether to ask HMRC for an internal review, which means that your case will be looked at again impartially by an officer or go directly to the First-tier tribunal. The Revenue usually deals with review requests within 45 days. Taxpayers typically have 30 days from the date of the decision to lodge an appeal against it.