Proposed reforms could allow HMRC to impose tougher penalties on taxpayers who fail to correct mistakes after being notified
HM Revenue and Customs (HMRC) is consulting on proposals that could significantly increase penalties for taxpayers who fail to correct mistakes on their tax returns after being notified by the tax authority.
The plans have prompted criticism from tax experts, who have warned they could expose freelancers, self-employed workers and property landlords to much larger fines for errors that were initially made innocently.
Under the proposals, HMRC would be able to treat an uncorrected mistake as "deliberate" if a taxpayer failed to amend it within a specified period after receiving a formal notification.
The change would increase the maximum penalty from 30 per cent of the tax owed for careless mistakes to as much as 100 per cent.
It would also allow HMRC to investigate up to 20 years of a taxpayer's financial affairs instead of the current six-year limit that applies to non-deliberate errors.
Under the current system, HMRC classifies an error as deliberate only where a 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.
Taxpayers who have not received a similar notification within the previous six years and who correct the mistake within the specified timeframe would not face a penalty.
However, those who fail to act before the deadline could have the error reclassified as deliberate, increasing the potential financial penalty and extending the period HMRC can investigate.
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."
Mr Shah said the complexity of the UK's tax system meant some people could make mistakes without realising they had done so.
He added: "A taxpayer may make an innocent mistake because they don't understand the rules."
HMRC said the proposals are intended to encourage taxpayers to correct mistakes more quickly after they have been identified.
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 tax authority said it believes the changes would improve compliance while allowing it to focus more resources on tackling serious tax avoidance.
HMRC is encouraging taxpayers, accountants and representative bodies to respond before any draft legislation is produced.
