Tips for dealing with the taxman

Penalties are charged to punish you for fraud or for failing to take reasonable care

Taking reasonable care is doing what any other person in your position and with your level of education and state of health would have done. Many HMRC officers seem to think that if you have got something wrong, you must have failed to take reasonable care. That is incorrect. You are not a tax expert. Someone in your position can be expected to have a broad overview of his tax obligations, but cannot be expected to know all of the intricacies of what is extremely complex legislation. There is no penalty for simply making a mistake in circumstances that most people would have been at risk of making the same mistake.

If you have not failed to take reasonable care…

…you can treat accusations of non-co-operation like water off a duck’s back.

If you cannot reach agreement with HMRC, you have a right of appeal to an independent Tribunal

Appearing before the Tribunal can be a bit scary, but in general the Tribunal will try to make sure that they understand your side of the story. So don’t feel forced to reach an agreement with HMRC. HMRC don’t want to go to the Tribunal any more than you do. Even though they have more experience, the Tribunal will expect them to have done a lot of preparatory work.

But be prepared to compromise

Even if right is on your side, it is up to you to prove that it is more likely than not that HMRC are wrong. HMRC often equate proof with documents. The Tribunal is more realistic, but will still expect someone to back up your story. If you don’t have any evidence, you are unlikely to win before the Tribunal, so don’t fight to defend a principle if you can compromise for a sum you can live with.

HMRC often ask for a payment on account

If you can’t afford to make a payment, tell them. Once you have come to a settlement, they obviously want the tax. But they don’t really want to bankrupt you or your business if they think that they are likely to be paid if they accept the money by instalments. Be realistic though! They will consider bankrupting you if they think you can afford to pay up front but are trying it on. So if you want to pay by instalments, you may need to produce a cash flow statement to demonstrate that is the only way you can pay.

Robert Maas is a consultant at CBW Tax and chairman of the ICAEW tax faculty’s enquiries and appeals subcommittee. 

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