What Is Deliberate Behaviour in Terms of Tax Penalties?
Posted: 13th December 2024
In simple terms, deliberate behaviour in tax matters is defined as intentional actions or omissions leading to incorrect tax decisions. And it’s something that HMRC takes seriously.
As it directly impacts tax collection and fairness, it can lead to severe outcomes for the taxpayer. So it’s important to understand what constitutes deliberate behaviour, the associated penalties, and how it differs from other behaviours (such as careless behaviour or innocent mistakes).
Let’s take a closer look at HMRC’s rules and specifications.
What Does HMRC Classify as Deliberate Behaviour?
HMRC defines deliberate behaviour in the context of tax errors/omissions as knowingly or intentionally providing false information, or failing to disclose income. In essence, a person knows what they are supposed to do, and can do what they are supposed to do, but fails to do it.
Examples include:
- Inflating expenses
- Underreporting income
- Falsifying records
Deliberate behaviour differs from careless mistakes, as these are a form of neglect. Careless mistakes aren’t made consciously, whereas deliberate behaviour suggests an intent to mislead. This intent is something HMRC has a responsibility to prove when alleging deliberate behaviour and may use evidence from a third party, admission by the taxpayer or its own observations to prove a case.
Penalties for Deliberate Behaviour
Unsurprisingly, those who try to mislead HMRC or withhold information are treated with the full force of their powers. HMRC can impose serious penalties for deliberate behaviour, including financial penalties (i.e. the percentage of tax owed) and potential legal action.
These penalties are broken down into two categories:
- Deliberate but not concealed: If a taxpayer provides information to HMRC they know to be inaccurate, they will face penalties. However, these penalties will be lower if the taxpayer hasn’t attempted to conceal their inaccuracies from HMRC (20-70% of the lost tax).
- Deliberate and concealed: This incurs higher penalties due to the additional effort to hide the behaviour. HMRC can typically charge a penalty between 50% to 100% of the lost tax.
These penalties can impact taxpayers in other ways too. Their reputation may not only be seriously damaged, but they may also need to undergo future compliance monitoring. In severe cases, taxpayers can also face the possibility of criminal prosecution.
In comparison, HMRC will assess careless mistakes based on the amount of tax at stake for a given tax year, and penalties are usually charged at 0-30% of the lost tax.
How to Avoid Deliberate Behaviour Allegations
Nobody wants to be under tax investigation, let alone face deliberate behaviour allegations. This is why it’s important to maintain complete records of income, expenses, and transactions at all times. We’d recommend regularly reviewing your tax submissions to ensure accuracy and prevent errors that could be perceived as deliberate.
You can also seek tax advice from a tax professional to ensure compliance with HMRC rules. They will be able to review your tax records and check that everything is accurate and current.
If you do end up in a situation where a tax mistake has been identified by HMRC, it can be a good idea to make a voluntary disclosure. Doing so not only demonstrates good faith and honest intentions to HMRC but can also reduce any penalties you may face.
The bottom line
Deliberate behaviour isn’t something HMRC takes lightly. So if you’ve knowingly committed a tax offence or are accused by HMRC of doing so, you should seek professional advice immediately.
Remember that HMRC may issue severe tax penalties (as well as potential legal action) if you’ve intentionally provided inaccurate or false information, as this is much more serious than a careless mistake. Carelessness implies negligence, while deliberate behaviour suggests attempted fraud. By maintaining accurate records, you not only ensure that you’re paying the right amount of tax but also reduce your chances of deliberate behaviour allegations by HMRC.
If you’re unsure about compliance or need assistance with addressing HMRC-related concerns, be sure to reach out to our team. With a huge breadth of industry knowledge, our tax specialists will get your situation under control in the quickest and most straightforward way possible.
