Tax penalty: is it worth appealing?

zebltd

Dear Team

I made a genuine mistake on my 07-07 tax return. I received a lump sum redundancy payment plus three months salary in lieu of notice. I filled my return a year after the event and went by the P45 documents supplied by my employer, calling the tax helpline to go through them. As advised I put the first 30K as tax exempt. All was completed exactly as the p45s.
A tax inspector sent me notice to supply all documents relating to the payment including letters, minutes and termination agreement, which I did immediately. They then sent me revised figures which indicated an error but which was not explained. I telephoned and they told me my employer had not included the first 30K in the P45 so the exemption was claimed twice. I had it checked out and agreed that unfortunately I owed a further 12K plus £900 odd interest! Then I got a letter issuing a negligence penalty for £1820. I paid the tax and interest, but questioned the penalty saying I had followed the official documents and feel my employer should have listed the entire payment, or at least given me a statement, and that they should pay the fine. The reply I just received states that my employer was correct, and I should have checked their letters and the agreement etc. the IR has taken off various %s for co-operation, keeping in touch etc but insists on the £1820 penalty for negligence. This is the para I don’t understand.

"The amount of your offer in settlement of my enquiry is for you to decide. I trust my explanation of the calculation of the penalty will assist you in reaching your decision on the amount of your offer. Please telephone if you wish to discuss your offer, otherwise please let me have your offer on the suitably worded letter of offer already sent to you."

Are they saying that I can make them an offer, OR if I don’t agree with their offer they might charge me the full 100% penalty?

And is it worth appealing anyway re the £1820, or is it hopeless?

I would be very grateful indeed for any advice.

Sorry to be so long winded!

fengirl_2

You cant appeal as there is no assessment to appeal against.
Your penalty is only just over 10% of the tax due, so they have reduced it as much as they are able. HMRC's view is that ignorance is no defence and you have made an error which you have to pay for. You can make a lower offer in terms of settlement and I would go for it - try, say 1200. The worse they can do is take you to the Commissioners at which you would have a chance to state your case and end up having to pay the 1820.

zebltd

Very helpful. I will try this route!

amf

There are a couple of issues here;-

1. This was no "genuine mistake". You knew how much you received, therefore must have known that your former employer (correctly) excluded the £30,000 from the P45 pay figure. To then claim the £30,000 exemption again was, to say the least, negligent. It is this negligent conduct that renders you liable to a penalty - the maximum penalty is £12,000, 100% of the tax lost.

2. I absolutely agree with everything fengirl says. Although a one off error, the amount involved is substantial. HMRC is looking for a 15% penalty (£12,000 @ 15%), which is reasonable. I have little doubt that if you offer a 10% penalty - £1,200 as fengirl suggests - HMRC will accept it. They may try to persuade you that a higher offer is appropriate but if you repeat parrot fashion that you think 10% is reasonable I don't think that HMRC would think it worth going the whole hog for £600.