If you make a mistake, but you were found to have taken reasonable care, you will not be penalised. However, if you made a mistake and were found to be careless, then a penalty may apply.

So what does 'reasonable care' really mean? HMRC has released some guidance in its Compliance Handbook manual. In principle, reasonable care will vary depending on the capabilities of the individual, and in particular on the type of business or transaction being dealt with.

In general, HMRC will expect lower standards from an unrepresented taxpayer than a taxpayer who is advised by a professional. Taxpayers are expected to take extra care where they are undertaking complicated or unusual transactions.

HMRC does not expect taxpayers to take reasonable care in completing the official returns; the duty also extends to the records that a taxpayer must keep in order to report income and gains correctly, and to the systems that a business needs to ensure that it correctly deals with tax in relation to its transactions. A Director has a statutory duty under the Companies Act 2006 to protect the interests of the company and its creditors. This includes being familiar with the various taxes that apply to the company and ensuring that the company has adequate systems in place to maintain accurate books and declare its tax liability. Directors are also required to make sure that the company has adequate systems so that it can meet its obligations for VAT, PAYE and any other relevant taxes.

Some directors are likely to have a better understanding of tax than others and HMRC accepts this. For example, finance directors would be expected to know about filing deadlines and how the tax penalty regime operates in practice.

Directors may also delegate responsibilities to employees. If so, the employees must be properly trained and equipped and HMRC will still hold the director responsible for the employee's mistakes. If a director does not understand the tax treatment of a particular transaction, HMRC would expect them to ask for advice from a competent person or HMRC.

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