Wrong kind of income omitted

The taxpayer’s employment was terminated on 31 August 2009. He received a severance payment of £213 600 of which £100 000 was in lieu of notice. The balance was compensation for loss of office.

The employer deducted tax at 20% from the total because the taxpayer has already been issued with a P45.

The taxpayer completed a tax return for 2009/10 using the figures on the P45 and forgetting to include the severance payment.

HMRC cross-checked the return in January 2012 against the employer’s return discovered the discrepancy and wrote to the taxpayer for information. He acknowledged the error immediately and explained how it came about.

The Revenue accepted the taxpayer’s explanation and mitigated the penalty to 15% of the under-declared tax in view of his cooperation.

The taxpayer asked HMRC to suspend the fine saying he would employ an adviser in future years to ensure...