I have seen some great articles on this recently for example ‘Tips & Advice Tax’ (Indicator Issue 22 September 2012)
A few years ago the tax rules were updated and the government added one aimed at ensuring those who took “reasonable care” in preparing their tax returns shouldn’t be penalised if the return is incorrect.
But HMRC don’t always remember the “reasonable care” rule for example J R Hanson and HMRC (H and HMRC) as reported in ‘Tips & Advice Tax’ Article HMRC overzealous on penalties.
H incorrectly applied a capital gains tax deduction he wasn’t entitled too and was hit with penalty for £14000, however, H used an accountant to prepare the returns and he had shown reasonable care so HMRC lost the case.
In addition under current rules HMRC could not pass the penalty to his accountant, so that means the accountants PI cover remains intact.
Here are some tips on how to show you have taken reasonable care:
1. You must supply your adviser with all the information that is relevant, don’t hold back information
2. Check your tax return agrees with the information you supplied
3. Ask about entries you don’t understand and keep records of the answers, you don’t need to become an expert you just need to keep notes
There are cases where reasonable care hasn’t been a successful defence for example Mr Waseem Shakoor v HMRC  highlight by www.rossmartin.co.uk as they point out in the this case the taxpayer didn’t follow the the 3 steps above and it was commented at the Tribunal that this was:
“a case of shutting one’s eyes to what either was or ought reasonably to have been seen as incorrect advice – if, indeed, any such advice was actually given –a matter upon which we entertain significant doubt.”