HM Revenue and Customs (HMRC) General anti-abuse rule (GAAR) guidance, with reference to The UK Finance Act 2013, the UK Companies Act 2006, the National Insurance Contributions Act 2014.
All UK corporate service providers, accountants, companies and intermediaries all have a duty to report any false statements submitted to the HMRC. By failing to report any incorrectly filed records, is breaking the law, with the service provider or intermediary also potentially becoming liable for the assistance and enabling of tax evasion accordingly.
Applicable UK filing legislation is generally speaking quite relaxed for negligent filings and also when all company officers are honest about previous misfiling’s. If any company officers make a statement you know to be false, the HMRC can conduct a criminal investigation leading to prosecution in court on behalf of your company.
VAT dishonest conduct penalties – CC/FS20
The HMRC charge statutory interest on any tax paid late and may also charge a penalty for:
- failing to notify the HMRC of any known liabilities to tax.
- failing to make a return on time or at all.
- negligently or deliberately providing an inaccurate tax return or financial statement.
- failing to correct, within a reasonable time, a mistake you notice in a tax return
- late payment.
The HMRC calculate penalties in accordance with provisions contained in legislation. These can be reduced for positive behaviour.
Calculating the amount of the potential lost revenue (PLR)
The penalty for any of the above is calculated using a percentage of what is known as ‘potential lost revenue’. PLR is the amount that arises from correcting an error in a return or financial statement, an incorrect repayment or an inaccurate claim.
Determining the HMRC’s view of the incorrect filings
Whenever an inaccuracy has been filed, the authorities in the UK tend to try to work with companies to find out what caused it. HMRC refer to this as the ‘behaviour’. The type of behaviour will affect whether or not a penalty is charged, and the amount of the penalty as a percentage (see table below).
There are 4 different types of behaviour
1. Reasonable care
Everyone has a responsibility to take reasonable care over their corporate filings. What ‘reasonable care’ is will depend on each companies’ abilities and circumstances.
If you took reasonable care to get things right but your return or financial statement still contained an inaccuracy, HMRC will not charge you a penalty.
2. Careless behaviour
This is where it shows that the company officers failed to take reasonable care to file the annual returns correctly.
3. Deliberate behaviour
This is where company officers knew that a return or financial statement was inaccurate when it was filed with the HMRC. Examples of deliberate inaccuracies include:
- Deliberately overstating your business expenses.
- Deliberately understating your income.
- Deliberately paying wages without accounting for Pay As You Earn and National Insurance contributions.
4. Deliberate or purposely hidden inaccuracies
This is where company officers knew that a return or financial statement was inaccurate and took active steps to hide the inaccuracy from the authorities, either before or after sending it. An example of taking active steps to conceal an inaccuracy is where you deliberately file a zero balanced accounting sheet omitting transactions that occurred during such period.
Deciding whether the disclosure was unprompted or prompted- This determines the minimum penalty percentage that can be charged.
Deciding the range that the penalty falls within
The penalty percentage falls into one of 6 ranges. The range it falls into depends on the type of behaviour and whether it was a ‘prompted’ or ‘unprompted’ disclosure.
The following table shows the 6 penalty ranges:
|Type of Behaviour||Prompted Disclosure||Unprompted Disclosure|
|Reasonable Care:||No Penalty||No Penalty|
|Deliberate & Concealed:||30%-100%||50%-100%|
Working out the amount of the penalty To work out the amount of the penalty, the potential lost revenue (PLR) is multiplied by the penalty percentage rate. For example, if the PLR in the example above was £5,000.00, the penalty would be £975.00 (£5,000.00 x 19.5% = £975.00).
When a company officer may have to pay some or all of a company’s penalty for a deliberate inaccuracy
A company officer may have to pay some or all of the company’s penalty if the penalty is due to their actions, and one or more of the following applies:
- They have personally gained, or attempted to gain from a deliberate inaccuracy.
- The company is, or is perceived to about to become insolvent – even if the officer did not personally gain from the deliberate inaccuracy.
If a company has deliberately done something wrong
The HMRC may carry out a criminal investigation with a view to prosecution if any company is found to have deliberately done something wrong, such as:
- Submitting information that you know not true to be (this includes verbally or in a financial statement).
- Dishonestly misrepresented how much tax you owe, or claimed payments you’re not entitled to.
Managing serious defaulters
If a company has deliberately got its tax affairs wrong, and this is found during the check, the company’s tax affairs and filings will be more closely monitored. HMRC have an enhanced monitoring programme called ‘managing serious defaulters’.
Compliance checks for penalties of inaccuracies in returns or financial statements (CC/FS7a)
The HMRC may charge companies penalties if they are sending a return or other financial statement that contains an inaccuracy, and the inaccuracy:
- results in tax being unpaid or understated and
- was careless, deliberate or concealed.
If you ask someone else, such as an adviser or intermediary to do something on your behalf, you must do as much as you can to make sure that an inaccuracy does not occur.
If you don’t give HMRC accurate details, in full, they can take you to court and you may get a fine or lose the company license.
|Tax, Duty or Levy due:||What happens if the HMRC receives inaccurate information|
|PAYE deductions: Class 1 National Insurance contributions:||It’s a criminal offence not to give the security in full for these taxes/duties. The HMRC can take companies to court and may receive a fine of up to GDP £5,000.|
|VAT:||It is a criminal offence to make taxable supplies if you have not given the security in full. The HMRC can take companies to court and may receive a fine of up to GDP £5,000 for each taxable supply made.|
Potential Appeals for Late Filing or Other Penalties
Explaining any of the below appeals may create a case in your companies favour. However please note that none of the below categories are intended to create an indefinite exemption from the consequences of late filing or any legitimate company penalties. Each case for appeal will be considered by an individual case manager who may not apply a standardised approach.
- Former accountants refused to release books to new accountants.
- The Company Accountant was ill or has died.
- If the company was confused between criminal prosecution action & civil late filing penalties.
- HMRC have agreed not to collect a penalty but the circumstances do not meet the criteria for the registrar’s discretion not to collect a late filing penalty.
- A company has re-registered and a penalty has been levied in accordance with the status of the company for the period that
- Accounts were made up to a date seven days either side of the accounting reference date (ARD) and the company assumed the filing period would be based on the date that it used.