Millions of self-employed workers and landlords across the UK face the prospect of being penalised for genuine paperwork mistakes on their tax returns under sweeping new powers proposed by HM Revenue and Customs (HMRC).
The tax authority is seeking to reclassify certain careless errors as deliberate if taxpayers fail to amend them within a specified period, a move that tax professionals warn could ensnare those who have made entirely innocent blunders.
Under the existing framework, an error is typically only deemed deliberate when a taxpayer knowingly submits incorrect information, but the proposed rules would significantly lower that threshold.
The proposed mechanism would work by HMRC sending a formal notice to a taxpayer alerting them to an error on their return.
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Those who have not received such a notice in the preceding six years and who promptly rectify the mistake would avoid any financial penalty.
However, failure to correct the error within the allotted timeframe would see it automatically reclassified as deliberate, exposing the taxpayer to fines of up to 100 per cent of the unpaid tax.
This reclassification also dramatically extends HMRC’s reach, allowing it to raise assessments stretching back 20 years rather than the six-year window that normally applies to careless mistakes.
Tax experts have raised concerns that the proposals could disproportionately affect ordinary taxpayers navigating an increasingly complex system.
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Nimesh Shah, the CEO of accountancy firm Blick Rothenberg, said: “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.”
He cautioned that growing complexity in the tax system is likely to result in more people inadvertently filing inaccurate returns.
Mr Shah added: “A taxpayer may make an innocent mistake because they don’t understand the rules.”
HMRC has defended the proposals, stating they are designed to bolster compliance while freeing up its resources to tackle more sophisticated tax avoidance schemes.
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A HMRC spokesperson 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.”
No timeline has yet been announced for when the new powers might take effect, leaving taxpayers and advisers uncertain about how soon the changes could begin to bite.