How Your Behavior Could Cost You Thousands of Dollars with HMRC

It’s not always about the numbers!

Talking about taxes, it’s not always just about numbers. HMRC also cares about how you behave and cooperate with them.

Errors on your tax return? What would you do?

Let’s say you made a pretty big mistake on your tax return. What are you doing? Did you address the situation immediately? Do you say, “I’ll take care of it another time”? Or do you close your eyes and hope it goes away?

Recent court decisions show that, situations such as errors in tax returns, or failure to declare income/gains, are not only assessed based on how much loss of income is at stake, but also based on what steps you as the taxpayer take to ensure accuracy or resolve the failure.

Taking the wrong action (or not taking any action) can be a determining factor in whether HMRC imposes additional financial sanctions or even has the legal ability to investigate your records from the previous 20 years.

Two recent cases at the Tax Court of First Instance highlight the importance of this perfectly: Witton [2026] TC 09793 And Uzoh [2026] TC 09775

What ‘behavior’ determines what outcome?

There are generally three categories of behavior that HMRC can assess you:

1. Reasonable Care
2. Careless but not intentional
3. Intentional (either hidden or not hidden)

Whichever category you fall into can determine:

1. The level of punishment they can impose on you; And
2. How far they can delve into your tax history, if they decide to do so.

Exercise reasonable care

Reasonable care is not about perfection. It’s about taking reasonable steps to check and strengthen your tax position. A reasonable taxpayer would generally:

• Keep accurate records of income, expenses and deductions.
• Check figures and reconcile accounts before filing a return.
• Seek guidance from HMRC manuals, legislation or official guidance if necessary.
• Consult a professional advisor if unsure, and act if advice is unclear.
• Act immediately if an error is discovered, inform HMRC rather than ignoring it.

Failure to take these steps may leave taxpayers exposed, even if there is no intent to mislead.

Careless behavior

A tax loss or situation is deemed to have occurred carelessly if the person failed to take reasonable action to avoid it.

This is an objective test based on what a reasonable and prudent person would do in the same situation.

This is different to intentional conduct, which is subjective and requires HMRC to show what the taxpayer actually knew.

Case: Uzoh [2026] TC 09775

• Mr Uzoh claimed employment expenses using a digital tax application service.
• HMRC challenged some of the claims, arguing that they were invalid.

The court found:

• Taxpayers should inquire about the content and validity of claims before filing them, rather than relying solely on third-party advisors.

Even without intending to deceive, the taxpayer was found to have acted carelessly because he failed to exercise reasonable care to avoid error. HMRC can issue fines and recover unpaid tax.

Usually the appointment of an advisor can help certify that reasonable care has been taken. However, if you do not ask the appropriate questions or check your documents properly, as in this case, it can result in an unfavorable outcome.

Intentional behavior

Intentional behavior is considered when a tax loss arises because a person deliberately provides inaccurate information or deliberately ignores the risk of error. The bar for doing this is generally very high.

HMRC must prove that the taxpayer knew the information was false or “knowingly avoided” confirming its accuracy.

Case: Witton [2026] TC 09793.

• Witton worked initially as an entrepreneur and then as a director of a financial services company.
• HMRC stated that he deliberately did not report his income and that his employer deliberately did not enforce PAYE.
• They are seeking to recover all unpaid taxes and fines from him personally since 2006.

The court found:

• He relied on his accountant and his company’s finance department. He is not responsible for payroll or finances.
• Its earnings fluctuate greatly, making it difficult to reconcile bank deposits with its gross turnover.
• He had no formal contract or payslip for his directorship and assumed that any salary received would be taxable.
• Failure to submit a tax report alone does not prove an intentional act.

As HMRC could not show that he had acted deliberately, their discovery assessment was too late and penalties could not be applied.

Collaboration with HMRC

Ultimately, regardless of how HMRC characterizes a behaviour, the more cooperative you are, the more likely it is that the consequences can be mitigated. This can be achieved by:

• Immediate disclosure – notify us (and HMRC if necessary) of any failure or inaccuracy as soon as possible.
• Complete details – provide clear and accurate information about the extent of failure or inaccuracy.
• Responsive engagement – answer questions thoroughly and in a timely manner.

However, while transparency is important, there is a balance to be struck. Inadvertently providing excessive or unrelated information can lead to further questions or problems, if everything has been done correctly in the past. The key is to be open and accurate, but focus on providing what is relevant and requested rather than volunteering irrelevant details.

Protect Yourself

So what can you do to protect yourself from future punishment or judgment?

• Document everything: keep records of calculations, communications and professional advice.
• Ask questions: never assume others are handling your obligations correctly.
• Act immediately: don’t ignore it, let HMRC know if you spot an error.
• Seek professional advice: Specialist guidance can make the difference between being deemed careless or deliberate.

The main thing is

Your behavior is as important as the numbers on your tax return. Exercising reasonable care, being proactive, and seeking guidance can protect you from fines and possible back taxes for decades. Cases like Witton And Uzoh show that how you act largely determines your risk with HMRC.

If there is a problem can I deal with HMRC myself?

Dealing with HMRC alone can sometimes be risky and time consuming. Even a small mistake or misstep in explaining a situation can result in penalties, interest, or a lengthy investigation.

So while you can do it yourself, using an advisor like ETC Tax can:

• Reduce risk – ensure disclosure and responses are accurate and proportionate.
• Protects you from unnecessary punishment – using an advisor can demonstrate co-operation and help demonstrate reasonable care in the eyes of HMRC.
• Provide clarity – guides you on what to say, when to say it, and what to document.

The next step

Tax is complex, and often HMRC will refer to complex legislation, which is better done by a trained person.

If you are concerned about your HMRC position, please don’t hesitate to contact one of the team.