Two new levies come into effect on 6 April 2017: the apprenticeship levy and the immigration skills charge. These can apply to smaller employers as well as larger ones. In our latest tax tips we outlined the principles for both of these new taxes. There are also two developments relating to how penalties can be calculated and appealed.

Below we share just part of one of the above 3 tax tips – see the side boxes on this page to learn how you could subscribe to receive the full 3 tax tips every week.

Appealing penalties

The tax penalty system contains two broad categories of penalties; those for late filing or late payment which increase according to the delay in filing or payment, and behavioural penalties which relate to errors in documents, failure to notify and under-assessment by HMRC.

Late filing or payment

These penalties are based on the period of delay of the filing or tax payment, which is easy to quantify. The second element of the penalty is either a fixed charge or the tax liability. It is always worth checking that both of these elements have been correctly measured before they were included in the penalty calculation, as HMRC does make mistakes.

If the calculation is correct, the taxpayer must demonstrate a reasonable excuse for the delay as grounds for an appeal against the penalty. You can help your client frame their story which supports the reasonable excuse, and suggest which documents need to be retained to send to HMRC, should they undertake an internal review of the appeal.

The factors making up the reasonable excuse can include the actions or inactions of HMRC, as demonstrated in the VAT surcharge case of MOC (Scotland) Ltd v HMRC. In that case the company received such poor service from HMRC that the tribunal decided the taxpayer did have reasonable excuse for late payment.

The taxpayer can now make an online appeal against late filing or late payment penalties relating to their 2015/16 SA return. You can’t submit an online appeal on behalf of your client, as the online mechanism hasn’t been opened up to tax agents. However, you can still submit a paper appeal for your client using the form SA370.

Behavioural penalties

The first element of a behavioural penalty is a percentage based on whether the taxpayer’s mistake was careless, deliberate, or deliberate and concealed, which is further adjusted depending on how the error was disclosed. This percentage is multiplied by the potential lost revenue (PLR).

Our tax enquiry experts can help you check whether penalties for tax return mistakes can be challenged or reduced.