Eight tax penalty tips for tax students

Understanding how HMRC tax penalties work are an essential part of the Principles of Taxation course. There’s lots of information to take in, so we’ve developed these handy tips to help you remember the key details.

1. Remember your rates sheet (PoT)

All the information about the various penalties is included within the rates sheet for the Principles of Taxation course. It is important that you familiarise yourself with the format of each penalty.

2. Look at the legislation (TPS Tax and ITP)

For TPS tax it is advisable that the penalties should be highlighted in the legislation as the details will not be given in the rates sheet.  You can find all of the statutory references for the relevant penalties in the Principles of Taxation course: Module 1.

3. Identify the main issue

When working with penalties students should first identify the issue that gives rise to a penalty. For example, has the taxpayer or business told HMRC about income which has not been taxed? Or, have they perhaps failed to file the tax return by the statutory deadline?

4. Remember when penalties are cumulative

For the late filing penalties it is important to remember that the penalties are cumulative. So, the initial penalty of £100 is the minimum amount which increases by the daily £10 penalty when the return is three months late and further penalties are added on each time.

5. Don’t get confused

In recent exams we have seen that students can get mixed up over which penalty applies in which situation – ensure you are clear in your mind about which penalty applies in which situation. Remember that returns (paperwork) and payments are two separate events, even if they are happening the same day, so you may need to apply two penalties in one situation.

6. Practice makes perfect

We recommend lots of question practice on tax penalties. There are lots of workshop exercises available that contain penalties in both the Principles of Taxation (module 1) and TPS taxation courses (throughout the course WSEs).

7. What you learn in PoT is examinable at TPS

Don't forget that although the detail of the penalties is covered in the Principles of Taxation course, they can be (and have been) examined as part of a scenario in a TPS taxation exam.  Watch out for phrases at TPS which ask for the 'taxation implications' of a particular scenario which should include any details on what penalties have or could arise.

8. Provide more than just basic information

At TPS it’s essential that you provide advice to clients on how they can avoid penalties by specifying the technical material on penalties. You should also go one step further by including specific information to your client such as the date(s) when a tax return needs to be filed or what the next key date is that will trigger the next tier of penalties.

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