Penalties and interest: Shortfall penalties
Gross carelessness
In tax matters, "gross carelessness" is behaviour that demonstrates a high degree of carelessness and disregard of the consequences. It's conduct that creates a high risk of a tax shortfall occurring, which would have been foreseen by a reasonable person in the same circumstances. It doesn't matter whether you were unaware of being grossly careless or intended to be so. The penalty for gross carelessness is 40% of the resulting tax shortfall.
| Example 1 | |
|---|---|
| Nicky has been so busy with her cleaning business she hasn't found the time to establish and maintain accurate records of the income she has earned. Nicky did set up a cashbook at the beginning of the year, but didn't record her income at regular intervals. At the end of the year Nicky estimates the income she earned, but substantially understates it. She has been grossly careless in that, by her actions, there was a high risk she would understate her income. Nicky is charged a penalty of 40% of the tax shortfall. | |
| Example 2 | |
|---|---|
| As a busy company manager Jim doesn't carry out a stocktake at year's end. Instead, he estimates the value of the stock and records that fi gure in the accounts. A tax shortfall results. Jim incurs a penalty of 40% of the tax shortfall. Under general legal principles, a reasonable person would have been aware there was a high risk of a tax shortfall from not carrying out a proper stocktake. | |
Date published: 30 Aug 2006
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