HMRC have issued a guidance note on the new penalty regime. It says all the things you would expect – they will come down hard on those who obtain unfair advantages through noncompliance. The general idea is to explain how important it is for everybody to comply with tax obligations and, if people fail to do so, they will be liable to pay a penalty. Nothing new there. However, one important area is the circumstances in which they will not charge a penalty at all. This is new – and definitely welcome.

Generally, the idea is that there will be no penalty if taxpayers can demonstrate they have taken reasonable care to get their taxes right but, nevertheless, submitted an incorrect return. To do so, they will have to show that their accounting records and systems were accurate. If they are using a tax adviser, they cannot rely on the adviser blindly. The taxpayer will be regarded as having taken reasonable care only if the agent was competent, was provided with all the relevant information and the taxpayer checked the return (as far as he or she could) before it was submitted to HMRC.

Where somebody discovers an error has been made on his or her return, he or she will not be charged a penalty providing the error was not deliberate, it is disclosed without prompting and it is put right reasonably quickly. However, a disclosure will be regarded as unprompted only if it is made at a time when the person making it had no reason to believe that HMRC have discovered or were about to discover the inaccuracy.

There is a new idea, which is called a “suspended penalty”. This applies when there is a failure to take reasonable care – it will not apply in cases of deliberate inaccuracy. HMRC may set suspension conditions, such as making specified improvements to the taxpayer’s recordkeeping. If the conditions were met, the penalty would be cancelled, but if the conditions were broken, the penalty would become payable. It is clear that this suspended penalty idea will not be automatic, but will depend upon the conduct of the taxpayer and the nature of the failure involved.