What Happens When You Make A Mistake On Your Tax Return?

Mistakes happen… millions of us make mistakes on our tax returns each year.

So what actually happens if you make a mistake?
What are the penalties?
How does HMRC deal with mistakes?

Let’s get the most common question out of the way first – no you won’t go to prison for a genuine error on your tax return!

HMRC aren’t interested in heavy punishments for people who make genuine mistakes, they are more interested in pursuing persistent offenders and more importantly those who are committing fraud and deliberate tax evasion.

So don’t worry if you make a mistake, you won’t end up in a cell next to a seasoned criminal. Can you imagine how overcrowded the jails would be!

“What are you in for?”
“I missed a decimal point on my last self-assessment”

But in all seriousness, ignorance is not an excuse for making mistakes, and despite the fact you won’t be getting a serious punishment for any error, it can cost you financially. That’s why we highly recommend using a good accountant to deal with all your tax affairs. Even if it is just a self-assessment.

What Happens If You Make A Mistake?

When you submit your self-assessment HMRC accept it and don’t question it upon submission. However, they have the right to audit you for up to seven years (which is why you need to keep records for at least seven years)
If upon audit HMRC believe you have made an error in your favour. IE: you owe the tax man money.
They will simply take the money and you will have to challenge HMRC to get it back.
Wait… what?
Yes, you have to pay the money and only then can you challenge it. Which as you can imagine can be very damaging to your cash flow.

Why Would You Be Audited?

HMRC have many ways to detect who should be looked into more closely. Although often it can be random. Here are some things that might trigger an investigation:

Making regular mistakes. If you are regularly making mistakes on your tax return HMRC will want to look at you more closely to find out why.

Numbers fluctuating widely from one return to the next. If some of your numbers are fluctuating widely from one year to the next with no real explanation. HMRC will wonder why and may want to look closer.

If your business hasn’t made a profit for years. Granted, some businesses take a while to become profitable. But if you are consistently making a loss then HMRC may want to double check what you are claiming for.

Figures not in line with industry standards. Whilst profitability and costs can vary wildly from company to company, HMRC has a broad benchmark for what certain industries are doing. For example, the costs of a manufacturing company may be fairly high. Whereas a software company is a lot lower.

You aren’t using an accountant. Yes, this might seem unusual but HMRC will often wonder why you are not using an accountant. Are you trying to hide something or are you making mistakes that an accountant wouldn’t?

What Are The Penalties?

The penalties vary all the time and are related to the seriousness of the offence and the amount of money involved.
If any documents you submitted are incorrect HMRC will demand back any tax owed plus any penalty or fine. (This is alongside any late fines)

  • Lack of ‘Reasonable care’
  • Deliberate
  • Deliberate and concealed

Are the three benchmarks HMRC will use. The level of the penalty will take these into account and what steps were taken to put the error right.

The easiest thing is to make sure you aren’t making mistakes in the first place.

Here at RJF we can help you with all your tax affairs. As our client, you can relax knowing we have everything in hand and we’ll ensure your returns are filed correctly and on time.

Give us a call today and take that tax weight off your shoulders!