Penalties can be levied for errors in tax returns and other documents in addition to any additional tax(es) and interest on the late payment of the tax(es). There is no equivalent negative penalties to any overpaid tax in another tax year, for example.
The current penalty regime was introduced in April 2009 and is based on the taxpayer’s behaviour. Where a Settlement includes tax years that pre dates April 2009, a different penalty regime applied.
Any tax geared penalty is based on a taxpayer’s behaviour both when the irregularities occurred right up until when the irregularities were put right. It is therefore important that a taxpayer endeavours to assist HMRC even if the taxpayer is unable to supply the documentation, for example.
HMRC can charge a penalty if the error is:
The level of the penalty is linked to the reason why the error occurred. The more serious the reason, the higher the maximum penalty can be. HMRC can reduce the penalty if the taxpayer(s) helps them to put things right.
HMRC will consider the whole matter when looking at the level of penalties due. It may be that some of the irregularities are considered to be more heinous then others and therefore penalised more.
Penalties can be up to 100% of the additional tax due. HMRC will start at 100% and mitigate the penalty down rather than start at zero and work upwards.
Penalties are based on the “potential lost revenue” (PLR), i.e. the extra tax due if:
Yes. Penalties can be reduced by:
For offshore matters or offshore transfers, penalties have also been increased. HMRC can charge penalties where offshore matters or offshore transfers are involved. This follows HMRC’s Requirement to Correct (RTC) programme that closed on 30 September 2018.
Penalties for failing to make a disclosure under RTC legislation are called Failure to Correct (FTC) penalties and can be up to 200% of the additional tax involved.
They do not vary according to:
An asset-based penalty will apply if all of the following apply:
The amount of the Asset Based penalty is the lower of
Not necessarily. It all depends primarily on the facts.
Taxpayers and their advisers should consider what penalties may be applied at the outset. Behaviours do not just start and finish and will continue to be monitored throughout any dialogue with HMRC until the matter has been resolved.