Taxpayers can no longer expect to be presumed innocent by the taxman under proposed changes that will increase penalties for unpaid tax.

Under the changes, introduced in the Commons last week, taxpayers will be forced to second-guess assessments from HM Revenue & Customs inspectors and scrutinise the work of their own accountants or pay hefty penalties for mistakes.

Taxpayers will have 30 days to spot an error in a Revenue assessment or face penalties of up to 30 per cent of the amount of the unpaid tax.

The revised penalty regime, which comes into force at the start of the 2008 financial year, will also see taxpayers lose the defence that previously operated where a mistake was the fault of an accountant or tax adviser. In the past, if a taxpayer was entirely innocent, the Revenue could not apply a penalty.

The updated penalty regime applies to late or unpaid income tax, corporations tax, PAYE and VAT.

Penalties will be applied where taxpayers pay too little tax, or overstate a loss on their tax return.

The Revenue said yesterday that penalties would only be applied if “the agent or taxpayer has failed to demonstrate reasonable care in preparing their tax return. This explicitly applies to both agents and taxpayer. The new rules mean that as long as the taxpayer has provided the agent with accurate information and taken reasonable steps to check that the agent has made an accurate return, we would accept that reasonable care had been taken and there would be no penalty.”

However, business and accountants yesterday branded the changes unveiled in the Finance Bill 2007 as “draconian”. Mike Warburton, a senior tax partner at Grant Thornton, said: “Inland Revenue have historically maintained the presumption of innocence when assessing taxpayers. Now the onus will be on the taxpayer to prove they are innocent.”

He said that the new system could give rise to a spike in litigation cases between accountants and their clients.

“What’s going to happen, being blunt about it, is that it’s going to give rise to arguments. Accountants are going to have to be that much more careful, insurance premiums will go up and that will put up the fees. At the end of the day, the punter will lose.”

Under the draft laws, taxpayers who have made mistakes that are not considered “careless” or “deliberate” will not be penalised.

However, the Revenue has yet to inform taxpayers or accountants exactly how it will determine when a taxpayer has been entirely innocent.

Chas Roy-Chowdhury, head of tax at the Association for Chartered Certified Accountants, said it was “unfair” to expect taxpayers to understand a complicated tax system better than their advisers and Revenue authorities.

“The reason that taxpayers rely on third parties is because they don’t know the tax system well enough,” he said. “If they are going to shift blame for mistakes they need to operate a much more light-touch penalties regime,” he added.

Ian McCafferty, the CBI’s chief economic adviser, said: “These proposals are yet another tax burden on business. They should not have been made part of this Bill when the Government had only given itself one week to consider the consultation responses.

“Given the complexity of UK tax law, it is not reasonable to expect businesses, with such little notice, to scrutinise the figure that HMRC itself calculates if this is to lead to penalties.”

Shift in blame

Existing excuses for HM Revenue & Customs:

—argue it was your agent’s fault

—apply for discounts for small errors, cooperating with inspectors, or prompt disclosure

—contend that the tax inspector was at fault

The excuses you will have to use now:

—the Revenue says it is an innocent mistake

—the Revenue says it is a sufficiently small mistake

—penalties “to be based on the capabilities of the customer”