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V4: Penalties for inaccuracy

Penalty for error in taxpayer document

 

"(1)     A penalty is payable by a person (P) where—

(a)     P gives HMRC a document of a kind listed in the Table below, and

(b)     Conditions 1 and 2 are satisfied.

(2)     Condition 1 is that the document contains an inaccuracy which amounts to, or leads to—

(a)     an understatement of a liability to tax,

(b)     a false or inflated statement of a loss, or

(c)     a false or inflated claim to repayment of tax.

(3)     Condition 2 is that the inaccuracy was careless (within the meaning of paragraph 3) or deliberate on P's part." (FA 2007, Sch 24, para 1(1) - (3))

Multiple errors in the same document

"(4)     Where a document contains more than one inaccuracy, a penalty is payable for each inaccuracy." (FA 2007, Sch 24, para 1(4))

Penalty for error in taxpayer document

- Gives a document/makes a return

 

"(h)     a reference to giving a document to HMRC includes a reference to communicating information to HMRC in any form and by any method (whether by post, fax, email, telephone or otherwise),

(i)     a reference to giving a document to HMRC includes a reference to making a statement or declaration in a document,

(j)     a reference to making a return or doing anything in relation to a return includes a reference to amending a return or doing anything in relation to an amended return, and

(k)     a reference to action includes a reference to omission." (FA 2007, Sch 24, para 28)

- Gives a document/makes a return

- Tax includes duty and CIS deductions etc.

 

"“Tax”, without more, includes duty." (FA 2007, Sch 24, para 23A)

"(a)     a reference to corporation tax includes a reference to tax or duty which by virtue of an enactment is assessable or chargeable as if it were corporation tax,

(b)     a reference to tax includes a reference to construction industry deductions under Chapter 3 of Part 3 of FA 2004," (FA 2007, Sch 24, para 28)

- Tax includes duty and CIS deductions

- Liability for careless inaccuracy in document given on taxpayer's behalf

 

"(1)     P is liable under paragraph 1(1)(a) where a document which contains a careless inaccuracy (within the meaning of paragraph 3) is given to HMRC on P's behalf." (FA 2007, Sch 24, para 18)

Unless taxpayer took reasonable care to avoid inaccuracy

"(3)     Despite sub-paragraphs (1) and (2), P is not liable to a penalty under paragraph 1 or 2 in respect of anything done or omitted by P's agent where P satisfies HMRC that P took reasonable care to avoid inaccuracy (in relation to paragraph 1) or unreasonable failure (in relation to paragraph 2)." (FA 2007, Sch 24, para 18(3))

- Liability for careless inaccuracy in document given on taxpayer's behalf

- Table of documents

 

See FA 2007, Sch 24, para 1(4)

Income tax or capital gains tax  

Return under section 8 of TMA 1970 (personal return).      

Return under section 8A of TMA 1970 (trustee's return).      

Return, statement or declaration in connection with a claim for an allowance, deduction or relief.      

Accounts in connection with ascertaining liability to tax.      

Partnership return.      

Statement or declaration in connection with a partnership return.     

Accounts in connection with a partnership return.

Return under Schedule 2 to FA 2019     
Return under section 254 of FA 2004.

Return for the purposes of PAYE regulations.   

Construction industry scheme

Return for the purposes of regulations under section 70(1)(a) of FA 2004 in connection with deductions on account of tax under the Construction Industry Scheme.     

 

Corporation tax

Company tax return under paragraph 3 of Schedule 18 to FA 1998.  

Return, statement or declaration in connection with a claim for an allowance, deduction or relief.     

Accounts in connection with ascertaining liability to tax.     

Inheritance tax

Account under section 216 or 217 of IHTA 1984.

Information or document under regulations under section 256 of IHTA 1984.     

Statement or declaration in connection with a deduction, exemption or relief.     

VAT

VAT return under regulations made under paragraph 2 of Schedule 11 to VATA 1994.

Return, statement or declaration in connection with a claim.          

Insurance premium tax

Return under regulations under section 54 of FA 1994.    

Return, statement or declaration in connection with a claim.      

Excise duties

Alcoholic liquor duties    Return under regulations under section 13, 49, 56 or 62 of the Alcoholic Liquor Duties Act 1979.     
Alcoholic liquor duties    Statement or declaration in connection with a claim for repayment of duty under section 4(4) of FA 1995.     
Tobacco products duty    Return under regulations under section 7 of the Tobacco Products Duties Act 1979.     
Hydrocarbon oil duties    Return under regulations under section 21 of the Hydrocarbon Oil Duties Act 1979.     
Excise duties    Return under regulations under section 93 of CEMA 1979.     
Excise duties    Return under regulations under section 100G or 100H of CEMA 1979.     
Excise duties    Statement or declaration in connection with a claim.     

SDLT

Return under section 76 of FA 2003.     

Stamp duty reserve tax

Return under regulations under section 98 of FA 1986.     

ATED

Annual tax on enveloped dwellings return.  

Return of adjusted chargeable amount.  

Petroleum revenue tax

Return under paragraph 2 of Schedule 2 to the Oil Taxation Act 1975.

Statement or declaration in connection with a claim under paragraph 13A of Schedule 2 to the Oil Taxation Act 1975.    

Statement or declaration in connection with a claim under Schedule 5, 6, 7 or 8 to the Oil Taxation Act 1975.  

Statement under section 1(1)(a) of the Petroleum Revenue Tax Act 1980.    

Gambling duties

General betting duty    Return under regulations under paragraph 2 of Schedule 1 to BGDA 1981.

Pool betting duty    Return under regulations under paragraph 2A of Schedule 1 to BGDA 1981.

Bingo duty    Return under regulations under paragraph 9 of Schedule 3 to BGDA 1981.

Lottery duty    Return under regulations under section 28(2) of FA 1993.     

Gaming duty    Return under directions under paragraph 10 of Schedule 1 to FA 1997.     

Remote gaming duty    Return under regulations under section 26K of BGDA 1981.

Machine games duty         Return under regulations under paragraph 18 of Schedule 24 to FA 2012.

Other

Apprenticeship levy             Return under regulations under section 105 of FA 2016.

Digital services tax               DST return under paragraph 2 of Schedule 8 to FA 2020.

Plastic packaging tax           Return under regulations under section 61 of FA 2021.

Soft drinks industry levy     Return under regulations under section 52 of FA 2017       

Aggregates levy                   Return under regulations under section 25 of FA 2001.        

Climate change levy           Return under regulations under paragraph 41 of Schedule 6 to FA 2000.        

Landfill tax                            Return under regulations under section 49 of FA 1996.        

Air passenger duty              Return under section 38 of FA 1994.     

Any of the taxes mentioned above 

"Any document which is likely to be relied upon by HMRC to determine, without further inquiry, a question about—                   

(a) P's liability to tax, 

(b) payments by P by way of or in connection with tax,

(c) any other payment by P (including penalties), or

(d) repayments, or any other kind of payment or credit, to P."

Excludes documents giving rise to TMA s.98 penalties

"(1)     The final entry in the Table in paragraph 1 excludes a document in respect of which a penalty is payable under section 98 of TMA 1970 (special returns)." (FA 2007, Sch 24, para 12(1))

- Table of documents

- Understatement includes overstatement entitlement to VAT credit

 

"(d)     a reference to understating liability to VAT includes a reference to overstating entitlement to a VAT credit," (FA 2007, Sch 24, para 28)

- Understatement includes overstatement entitlement to VAT credit

- Loss includes charge, expense etc.

 

"(e)     a reference to a loss includes a reference to a charge, expense, deficit and any other amount which may be available for, or relied on to claim, a deduction or relief," (FA 2007, Sch 24, para 28)

- Loss includes charge, expense etc.
- Repayment includes allowing credit

- Repayment includes allowing credit

 

"(f)     a reference to repayment of tax includes a reference to allowing a credit [against tax or to a payment of a corporation tax credit," (FA 2007, Sch 24, para 28)

Penalty for deliberately supplying false information to or withholding information from a person who submits an inaccurate document

 

"(1)     A penalty is payable by a person (T) where—

(a)     another person (P) gives HMRC a document of a kind listed in the Table in paragraph 1,

(b)     the document contains a relevant inaccuracy, and

(c)     the inaccuracy was attributable to T deliberately supplying false information to P (whether directly or indirectly), or to T deliberately withholding information from P, with the intention of the document containing the inaccuracy.

(2)     A “relevant inaccuracy” is an inaccuracy which amounts to, or leads to—

(a)     an understatement of a liability to tax,

(b)     a false or inflated statement of a loss, or

(c)     a false or inflated claim to repayment of tax.

(3)     A penalty is payable under this paragraph in respect of an inaccuracy whether or not P is liable to a penalty under paragraph 1 in respect of the same inaccuracy." (FA 2007, Sch 24, para 1A)

Amount of penalty: 100%

"The penalty payable under paragraph 1A is 100% of the potential lost revenue." (FA 2007, Sch 24, para 4B)

Penalty for deliberately supplying false information to or withholding information from a person who submits an inaccurate document

Cap on aggregate penalties under paras 1 and 1A

Cap on aggregate penalties under paras 1 and 1A​

- Aggregate not to exceed relevant %

"(4)     Where penalties are imposed under paragraphs 1 and 1A in respect of the same inaccuracy, the aggregate of the amounts of the penalties must not exceed the relevant percentage of the potential lost revenue.

(5)     The relevant percentage is—

(za)     if the penalty imposed under paragraph 1 is for an inaccuracy in category 0, 100%,

(a)     if the penalty imposed under paragraph 1 is for an inaccuracy in category 1, 125%,

(b)     if the penalty imposed under paragraph 1 is for an inaccuracy in category 2, 150%, and

(c)     if the penalty imposed under paragraph 1 is for an inaccuracy in category 3, 200%." (FA 2007, Sch 24, para 12(4) - (5))

- Aggregate not to exceed relevant %

Penalty for failing to notify HMRC that assessment is too low

 

"(1)     A penalty is payable by a person (P) where—

(a)     an assessment issued to P by HMRC understates P's liability to [a relevant tax]1, and

(b)     P has failed to take reasonable steps to notify HMRC, within the period of 30 days beginning with the date of the assessment, that it is an under-assessment.

(2)     In deciding what steps (if any) were reasonable HMRC must consider—

(a)     whether P knew, or should have known, about the under-assessment, and

(b)     what steps would have been reasonable to take to notify HMRC.

(3)     In sub-paragraph (1) “relevant tax” means any tax mentioned in the Table in paragraph 1.

(4)     In this paragraph (and in Part 2 of this Schedule so far as relating to this paragraph)—

(a)     “assessment” includes determination, and

(b)     accordingly, references to an under-assessment include an under-determination." (FA 2007, Sch 24, para 2)

Amount of penalty: 30%

"The penalty payable under paragraph 2 is 30% of the potential lost revenue."  (FA 2007, Sch 24, para 4B)

Penalty for failing to notify HMRC that assessment is too low

- Liability for unreasonable failure by person acting in taxpayer's behalf

 

"(2)     In paragraph 2(1)(b) and (2)(a) a reference to P includes a reference to a person who acts on P's behalf in relation to tax." (FA 2007, Sch 24, para 18)

Unless taxpayer took reasonable care to avoid unreasonable failure

"(3)     Despite sub-paragraphs (1) and (2), P is not liable to a penalty under paragraph 1 or 2 in respect of anything done or omitted by P's agent where P satisfies HMRC that P took reasonable care to avoid inaccuracy (in relation to paragraph 1) or unreasonable failure (in relation to paragraph 2)." (FA 2007, Sch 24, para 18(3))

- Liability for unreasonable failure by person acting in taxpayer's behalf

Meaning of careless, deliberate and concealed

 

"(1)     For the purposes of a penalty under paragraph 1, inaccuracy in a document given by P to HMRC is—

(a)     “careless” if the inaccuracy is due to failure by P to take reasonable care,

(b)     “deliberate but not concealed” if the inaccuracy is deliberate on P's part but P does not make arrangements to conceal it, and

(c)     “deliberate and concealed” if the inaccuracy is deliberate on P's part and P makes arrangements to conceal it (for example, by submitting false evidence in support of an inaccurate figure)." (FA 2007, Sch 24, para 3(1))

Meaning of careless, deliberate and concealed

- Includes carelessness of persons acting on taxpayer's behalf

 

"(4)     In paragraph 3(1)(a) (whether in its application to a document given by P or, by virtue of sub-paragraph (1) above, in its application to a document given on P's behalf) a reference to P includes a reference to a person who acts on P's behalf in relation to tax." (FA 2007, Sch 24, para 18(4))

- Includes carelessness of persons acting on taxpayer's behalf

- Concealed: preventing the inaccuracy from being visible

 

"[102] Leach v HMRC [2019] UKFTT 352 (TC) addressed the meaning of ‘concealed’, where the tribunal observed (at paragraphs [105]-[109]):

“The meaning of ‘concealed’ is also not defined in Schedule 24. The Oxford English Dictionary (‘OED’) states that ‘conceal’ as an intransitive verb means: ‘To keep (information, intentions, feelings, etc.) from the knowledge of others; to keep secret from … others; to refrain from disclosing or divulging.’

We noted that Mr Leach immediately told Mr Wishman that he had destroyed all the records: this was not something HMRC discovered subsequently, so he did not ‘refrain from disclosing or divulging’ what he had done.

However, ‘conceal’ has a slightly different meaning when it is used transitively (ie so that the verb has an object); it is then defined as: ‘To hide (a person or thing); to put or keep out of sight or notice. Also: to prevent from being visible.’

The statutory context here is Sch 24, para 3, which says: ‘an inaccuracy in a document is … “deliberate and concealed” if the inaccuracy is deliberate on P's part and P makes arrangements to conceal it.’

An inaccuracy is therefore ‘concealed’ if the person makes arrangements to conceal ‘it’, ie the inaccuracy, so this is a transitive usage. The question is therefore whether Mr Leach prevented the inaccuracy from being visible?”

[103] HMRC submit that WJE must have known that there were inaccuracies in their VAT and Corporation Tax returns. It is not plausible that the omission from Appellant’s VAT and Corporation Tax returns of such a large proportion of their sales could have been anything other than deliberate and concealed.  The act of arranging two accounts with a supplier, declaring only one account’s purchases within the records in order to suppress their sales whilst retaining a credible GPR dictates a level of concealment. It can reasonably be inferred from the  disclosure during the visit on 17 October 2019 and the actions taken to conceal the true sales that WJE intended, or at least knew, that they were providing HMRC with documents that contained an error with the intention that HMRC should rely upon it as an accurate document." (WJE Limited v. HMRC [2023] UKFTT 74 (TC), Judge Baldwin)

- Concealed: preventing the inaccuracy from being visible

- Deemed carelessness if error subsequently discovered but HMRC not informed

 

"(2)     An inaccuracy in a document given by P to HMRC, which was neither careless nor deliberate [on P's part]1 when the document was given, is to be treated as careless if P—

(a)     discovered the inaccuracy at some later time, and

(b)     did not take reasonable steps to inform HMRC." (FA 2007, Sch 24, para 3(2))

Includes carelessness of persons acting on taxpayer's behalf

 

"(5)     In paragraph 3(2) a reference to P includes a reference to a person who acts on P's behalf in relation to tax." (FA 2007, Sch 24, para 18(5))

- Deemed carelessness if error subsequently discovered but HMRC not informed

- Deemed carelessness: persistently unco-operative large businesses

 

"(3)     Paragraph 47 of Schedule 19 to FA 2016 (special measures for persistently unco-operative large businesses) provides for certain inaccuracies to be treated, for the purposes of this Schedule, as being due to a failure by P to take reasonable care." (FA 2007, Sch 24, para 3(3))

"(1) For the purposes of Schedule 24 to FA 2007 (penalties for errors), an inaccuracy in a document given to HMRC by or on behalf of a person is to be treated as being due to failure by the person to take reasonable care if—

(a) the document was given to HMRC at a time when the person was a member of a group subject to a special measures notice, and

(b) the inaccuracy—

(i) relates to a tax avoidance scheme (as defined in paragraph 38) entered into by the person at a time when the person was a member of a group subject to a special measures notice, or

(ii) is, entirely or partly, attributable to an interpretation of legislation relating to UK taxation which, at the time the document was given to HMRC, was speculative.

(2) A group is “subject to a special measures notice” if a special measures notice—

(a) has been given to the head of the group in relation to the group, and

(b) is in force.

(3) An interpretation of legislation relating to UK taxation is “speculative” if it is likely that a court or tribunal would disagree with it.

(4) Sub-paragraph (1) does not apply to an inaccuracy if—

(a) it is deliberate on the part of the person or someone acting on the person’s behalf,

(b) it is in fact due to a failure by the person or someone acting on the person’s behalf to take reasonable care, or

(c) it is treated as due to such a failure by virtue of another enactment." (FA 2016, Sch 19, para 47)

- Deemed carelessness: persistently unco-operative large businesses

- Presumption of carelessness if error is due to tax avoidance arrangement not working 

 

"(1)     This paragraph applies where a document of a kind listed in the Table in paragraph 1 is given to HMRC by a person (“P”) and the document contains an inaccuracy which—

(a)     falls within paragraph 1(2), and

(b)     arises because the document is submitted on the basis that particular avoidance arrangements (within the meaning of paragraph 3B) had an effect which in fact they did not have.

(2)     It is to be presumed that the inaccuracy was careless, within the meaning of paragraph 3, unless—

(a)     the inaccuracy was deliberate on P's part, or

(b)     P satisfies HMRC or (on an appeal notified to the tribunal) the tribunal that P took reasonable care to avoid inaccuracy." (FA 2007, Sch 24, para 3A(1) - (2))

 

Document given on P's behalf

"(6)     Paragraph 3A applies where a document is given to HMRC on behalf of P as it applies where a document is given to HMRC by P (and in paragraph 3B(9) the reference to P includes a person acting on behalf of P)." (FA 2007, Sch 24, para 18(6))

Arrangement

"(9)     In this paragraph—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);" (FA 2007, Sch 24, para 3A(9))

Avoidance arrangement

(1)     In paragraph 3A “avoidance arrangements” means, subject to sub-paragraph (3), arrangements which fall within sub-paragraph (2).

(2)     Arrangements fall within this sub-paragraph if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements." (FA 2007, Sch 24, para 3B(1))

 

Tax advantage

"(10)     In this paragraph—

a “tax advantage” includes—

(a)     relief or increased relief from tax,

(b)     repayment or increased repayment of tax,

(c)     avoidance or reduction of a charge to tax or an assessment to tax,

(d)     avoidance of a possible assessment to tax,

(e)     deferral of a payment of tax or advancement of a repayment of tax,

(f)     avoidance of an obligation to deduct or account for tax, and

(g)     in relation to VAT, anything which is a tax advantage for the purposes of Schedule 18 to FA 2016 under paragraph 5 of that Schedule." (FA 2007, Sch 24, para 3B(10))

Established practice

(3)     Arrangements are not avoidance arrangements for the purposes of paragraph 3A if (although they fall within sub-paragraph (2))—

(a)     they are arrangements which accord with established practice, and

(b)     HMRC had, at the time the arrangements were entered into, indicated its acceptance of that practice." (FA 2007, Sch 24, para 3B(3))

 

Deemed avoidance arrangements (DOTAS, GAAR, follower notice, TAARs)

"(4)     If, at any time, any of Conditions A to E is met in relation to particular arrangements—

(a)     for the purposes of this Schedule the arrangements are to be taken to fall within (and always to have fallen within) sub-paragraph (2), and

(b)     in relation to the arrangements, sub-paragraph (3) (and the reference to it in sub-paragraph (1)) are to be treated as omitted.

This does not prevent arrangements from falling within sub-paragraph (2) other than by reason of one or more of Conditions A to E being met." (FA 2007, Sch 24, para 3B(4))

"(5)     Conditions A to E are as follows—

 

(a)     Condition A is that the arrangements are DOTAS arrangements within the meaning given by section 219(5) and (6) of FA 2014;

 

(b)     Condition B is that the arrangements are disclosable VAT arrangements or disclosable indirect tax arrangements for the purposes of Schedule 18 to FA 2016 (see paragraphs 8A to 9A of that Schedule);

 

(c)     Condition C is that both of the following apply—

(i)     P has been given a notice under a provision mentioned in sub-paragraph (6) stating that a tax advantage arising from the arrangements is to be counteracted, and

(ii)     that tax advantage has been counteracted under section 209 of FA 2013;

 

Relevant provisions

"(6)     The provisions referred to in sub-paragraph (5)(c)(i) are—

(a)     paragraph 12 of Schedule 43 to FA 2013 (general anti-abuse rule: notice of final decision);

(b)     paragraph 8 or 9 of Schedule 43A to that Act (pooled or bound arrangements: notice of final decision);

(c)     paragraph 8 of Schedule 43B to that Act (generic referrals: notice of final decision)." (FA 2007, Sch 24, para 3B(6))

(d)     Condition D is that a follower notice under section 204 of FA 2014 has been given to P by reference to the arrangements (and not withdrawn) and—

(i)     the necessary corrective action for the purposes of section 208 of FA 2014 has been taken in respect of the denied advantage, or

(ii)     the denied advantage has been counteracted otherwise than as mentioned in sub-paragraph (i);

Includes partnership follower notice

"(7)     In sub-paragraph (5)(d) the reference to giving a follower notice to P includes giving a partnership follower notice in respect of a partnership return in relation to which P is a relevant partner; and for the purposes of this sub-paragraph—

(a)     “relevant partner” has the meaning given by paragraph 2(5) of Schedule 31 to FA 2014;

(b)     a partnership follower notice is given “in respect of” the partnership return mentioned in paragraph 2(2)(a) or (b) of that Schedule." (FA 2007, Sch 24, para 3B(7))

Combination of corrective action and counteraction

"(8)     For the purposes of sub-paragraph (5)(d) it does not matter whether the denied advantage has been dealt with—

(a)     wholly as mentioned in one or other of sub-paragraphs (i) and (ii) of sub-paragraph (5)(d), or

(b)     partly as mentioned in one of those sub-paragraphs and partly as mentioned in the other;

and “the denied advantage” has the same meaning as in Chapter 2 of Part 4 of FA 2014 (see section 208(3) of and paragraph 4(3) of Schedule 31 to that Act)." (FA 2007, Sch 24, para 3B(8))

(e)     Condition E is that a tax advantage asserted by reference to the arrangements has been counteracted (by an assessment, an amendment of a return or claim, or otherwise) on the basis that an avoidance-related rule applies in relation to P's affairs." (FA 2007, Sch 24, para 3B(5))

Asserted by reference

"(9)     For the purposes of sub-paragraph (5)(e) a tax advantage has been “asserted by reference to” the arrangements if a return, claim or appeal has been made by P on the basis that the tax advantage results from the arrangements." (FA 2007, Sch 24, para 3B(9))

 

Avoidance-related rules (main purpose of obtaining tax advantage/commercial purpose rules)

“avoidance-related rule” has the same meaning as in Part 4 of Schedule 18 to FA 2016 (see paragraph 25 of that Schedule); (FA 2007, Sch 24, para 3B(10))

"(1) In this Part of this Schedule “avoidance-related rule” means a rule in Category 1 or 2.
(2) A rule is in Category 1 if it refers (in whatever terms)—
(a) to the purpose or main purpose or purposes of a transaction, arrangements or any other action or matter, and
(b) to whether or not the purpose in question is or involves the avoidance of tax or the obtaining of any advantage in relation to tax (however described).
(3) A rule is also in Category 1 if it refers (in whatever terms) to—
(a) expectations as to what are, or may be, the expected benefits of a transaction, arrangements or any other action or matter, and
(b) whether or not the avoidance of tax or the obtaining of any advantage in relation to tax (however described) is such a benefit.For the purposes of paragraph (b) it does not matter whether the reference is (for instance) to the “sole or main benefit” or “one of the main benefits” or any other reference to a benefit.
(4) A rule falls within Category 2 if as a result of the rule a person may be treated differently for tax purposes depending on whether or not purposes referred to in the rule (for instance the purposes of an actual or contemplated action or enterprise) are (or are shown to be) commercial purposes.
(5) For example, a rule in the following form would fall within Category 1 and within Category 2—
“Example rule
Section X does not apply to a company in respect of a transaction if the company shows that the transaction meets Condition A or B.

Condition A is that the transaction is effected—

(a)for genuine commercial reasons, or
(b)in the ordinary course of managing investments.”" (FA 2016, Sch 18, para 25)

No account taken of disqualified advice

"(3)     In considering whether P took reasonable care to avoid inaccuracy, HMRC and (on an appeal notified to the tribunal) the tribunal must take no account of any evidence of any reliance by P on advice where the advice is disqualified." (FA 2007, Sch 24, para 3A(3))

 

Disqualified advice

"(4)     Advice is “disqualified” if any of the following applies—

(a)     the advice was given to P by an interested person;

(b)     the advice was given to P as a result of arrangements made between an interested person and the person who gave the advice;

(c)     the person who gave the advice did not have appropriate expertise for giving the advice;

(d)     the advice took no account of P's individual circumstances;

(e)     the advice was addressed to, or given to, a person other than P;

but this is subject to sub-paragraphs (5) and (7)." (FA 2007, Sch 24, para 3A(4))

Interested person

"(6)     In sub-paragraph (4) “an interested person” means—

(a)     a person, other than P, who participated in the avoidance arrangements or any transaction forming part of them, or

(b)     a person who for any consideration (whether or not in money) facilitated P's entering into the avoidance arrangements." (FA 2007, Sch 24, para 3A(6))

Circumstances where an interested person's advice can be relied on

"(7)     Where (but for this sub-paragraph) advice would be disqualified under paragraph (a) of sub-paragraph (4) because it was given by a person within sub-paragraph (6)(b), the advice is not disqualified under that paragraph if—

(a)     the person giving the advice had appropriate expertise for giving it,

(b)     the advice took account of P's individual circumstances, and

(c)     at the time when the question whether the advice is disqualified arises—

(i)     Condition E in paragraph 3B(5) is met in relation to the avoidance arrangements, but

(ii)     none of Conditions A to D in paragraph 3B(5) is or has at any time been met in relation to them." (FA 2007, Sch 24, para 3A(7))

Reasonable belief that advice not disqualified

"(5)     Where (but for this sub-paragraph) advice would be disqualified under any of paragraphs (a) to (c) of sub-paragraph (4), the advice is not disqualified under that paragraph if at the relevant time P—

(a)     has taken reasonable steps to find out whether the advice falls within that paragraph, and

(b)     reasonably believes that it does not." (FA 2007, Sch 24, para 3A(5))

 

Relevant time

""(9)     In this paragraph—

...

“the relevant time” means the time when the document mentioned in sub-paragraph (1) is given to HMRC;" (FA 2007, Sch 24, para 3A(9))

Personal representatives

"(8)     If the document mentioned in sub-paragraph (1) is given to HMRC by P as a personal representative of a deceased person (“D”)—

(a)     sub-paragraph (4) is to be read as if—

(i)     the references in paragraphs (a) and (b) to P were to P or D;

(ii)     the reference in paragraph (d) to P were to D, and

(iii)     the reference in paragraph (e) to a person other than P were to a person who is neither P nor D,

(b)     sub-paragraph (6) is to be read as if—

(i)     the reference in paragraph (a) to P were a reference to the person to whom the advice was given, and

(ii)     the reference in paragraph (b) to P were to D (or, where P also participated in the avoidance arrangements, P or D), and

(c)     sub-paragraph (7) is to be read as if the reference in paragraph (b) to P were to D." (FA 2007, Sch 24, para 3A(8))

- Presumption of carelessness if error is due to tax avoidance arrangement not working 

Amount of standard penalty

 

"(1)     This paragraph sets out the penalty payable under paragraph 1. (FA 2007, Sch 24, para 4(1))

Category 1: domestic, category 1 territory or not income tax/CGT

"(2)     If the inaccuracy is in category 1, the penalty is—

(a)     for careless action, 30% of the potential lost revenue,

(b)     for deliberate but not concealed action, 70% of the potential lost revenue, and

(c)     for deliberate and concealed action, 100% of the potential lost revenue." (FA 2007, Sch 24, para 4(2))

"(1)     An inaccuracy is in category 1 if—

(a)     it involves a domestic matter, or

(b)     it involves an offshore matter and—

(i)     the territory in question is a category 1 territory, or

(ii)     the tax at stake is a tax other than income tax or capital gains tax." (FA 2007, Sch 24, para 4A(1))

 

Domestic matter

"(5)     An inaccuracy “involves a domestic matter” if it results in a potential loss of revenue and does not involve either an offshore matter or an offshore transfer" (FA 2007, Sch 24, para 4A(5))

Offshore matter

"(4)     An inaccuracy “involves an offshore matter” if it results in a potential loss of revenue that is charged on or by reference to—

(a)     income arising from a source in a territory outside the UK,

(b)     assets situated or held in a territory outside the UK,

(c)     activities carried on wholly or mainly in a territory outside the UK, or

(d)     anything having effect as if it were income, assets or activities of a kind described above." (FA 2007, Sch 24, para 4A(4))

Assets: CGT definition plus sterling

"(8)     “Assets” has the meaning given in section 21(1) of TCGA 1992, but also includes sterling." (FA 2007, Sch 24, para 4A(8))

Location of IHT assets

"(4A)     Where the tax at stake is inheritance tax, assets are treated for the purposes of sub-paragraph (4) as situated or held in a territory outside the UK if they are so situated or held immediately after the transfer of value by reason of which inheritance tax becomes chargeable." (FA 2007, Sch 24, para 4A(4A))

Offshore transfer

"(4B)     An inaccuracy “involves an offshore transfer” if—

(a)     it does not involve an offshore matter,

(b)     it is deliberate (whether or not concealed) and results in a potential loss of revenue,

(c)     the tax at stake is income tax, capital gains tax or inheritance tax, and

(d)     the applicable condition in paragraph 4AA is satisfied." (FA 2007, Sch 24, para 4A(4B))

Applicable condition

"(2)     Where the tax at stake is income tax, the applicable condition is satisfied if the income on or by reference to which the tax is charged, or any part of the income—

(a)     is received in a territory outside the UK, or

(b)     is transferred before the filing date to a territory outside the UK.

(3)     Where the tax at stake is capital gains tax, the applicable condition is satisfied if the proceeds of the disposal on or by reference to which the tax is charged, or any part of the proceeds—

(a)     are received in a territory outside the UK, or

(b)     are transferred before the filing date to a territory outside the UK.

(4)     Where the tax at stake is inheritance tax, the applicable condition is satisfied if—

(a)     the disposition that gives rise to the transfer of value by reason of which the tax becomes chargeable involves a transfer of assets, and

(b)     after that disposition but before the filing date the assets, or any part of the assets, are transferred to a territory outside the UK.

(5)     In the case of a transfer falling within sub-paragraph (2)(b), (3)(b) or (4)(b), references to the income, proceeds or assets transferred are to be read as including references to any assets derived from or representing the income, proceeds or assets.

(6)     In relation to an offshore transfer, the territory in question for the purposes of paragraph 4A is the highest category of territory by virtue of which the inaccuracy involves an offshore transfer.

(7)     “Filing date” means the date when the document containing the inaccuracy is given to HMRC." (FA 2007, Sch 24, para 4A(4AA))

Category 2: offshore, category 2 territory

"(3)     If the inaccuracy is in category 2, the penalty is—

(a)     for careless action, 45% of the potential lost revenue,

(b)     for deliberate but not concealed action, 105% of the potential lost revenue, and

(c)     for deliberate and concealed action, 150% of the potential lost revenue." (FA 2007, Sch 24, para 4(3))

"(2)     An inaccuracy is in category 2 if—

(a)     it involves an offshore matter or an offshore transfer,

(b)     the territory in question is a category 2 territory, and

(c)     the tax at stake is income tax, capital gains tax or inheritance tax." (FA 2007, Sch 24, para 4A(2))

Category 3: offshore, category 3 territory

"(4)     If the inaccuracy is in category 3, the penalty is—

(a)     for careless action, 60% of the potential lost revenue,

(b)     for deliberate but not concealed action, 140% of the potential lost revenue, and

(c)     for deliberate and concealed action, 200% of the potential lost revenue." (FA 2007, Sch 24, para 4(4))

"(3)     An inaccuracy is in category 3 if—

(a)     it involves an offshore matter or an offshore transfer,

(b)     the territory in question is a category 3 territory, and

(c)     the tax at stake is income tax, capital gains tax or inheritance tax." (FA 2007, Sch 24, para 4A(3))

Inaccuracy falling in more than one category: treat as separate inaccuracies

"(6)     If a single inaccuracy is in more than one category (each referred to as a “relevant category”)—

(a)     it is to be treated for the purposes of this Schedule as if it were separate inaccuracies, one in each relevant category according to the matters or transfers that it involves, and

(b)     the potential lost revenue is to be calculated separately in respect of each separate inaccuracy." (FA 2007, Sch 24, para 4A(6))

Amount of standard penalty

Classification of territories

 

"(1)     A category 1 territory is a territory designated as a category 1 territory by order made by the Treasury.

(2)     A category 2 territory is a territory that is neither—

(a)     a category 1 territory, nor

(b)     a category 3 territory.

(3)     A category 3 territory is a territory designated as a category 3 territory by order made by the Treasury.

(4)     In considering how to classify a territory for the purposes of this paragraph, the Treasury must have regard to—

(a)     the existence of any arrangements between the UK and that territory for the exchange of information for tax enforcement purposes,

(b)     the quality of any such arrangements (in particular, whether they provide for information to be exchanged automatically or on request), 

(c)     the benefit that the UK would be likely to obtain from receiving information from that territory, were such arrangements to exist with it,

(d)     the existence of any other arrangements between the UK and that territory for co-operation in the area of taxation, and

(e)     the quality of any such other arrangements (in particular, the extent to which the co-operation provided for in them assists or is likely to assist in the protection of revenue raised from taxation in the UK).

(5)     An order under this paragraph is to be made by statutory instrument.

(6)     Subject to sub-paragraph (7), an instrument containing an order under this paragraph is subject to annulment in pursuance of a resolution of the House of Commons.

(7)     If the order is—

(a)     the first order to be made under sub-paragraph (1), or

(b)     the first order to be made under sub-paragraph (3),

it may not be made unless a draft of the instrument containing it has been laid before, and approved by a resolution of, the House of Commons.

(8)     An order under this paragraph does not apply to inaccuracies in a document given to HMRC (or, in a case within paragraph 3(2), inaccuracies discovered by P) before the date on which the order comes into force." (FA 2007, Sch 24, para 21A)

Classification of territories

Potential lost revenue

 

Additional amount due as a result of correcting the inaccuracy

"(1)     “The potential lost revenue” in respect of an inaccuracy in a document (including an inaccuracy attributable to a supply of false information or withholding of information) or a failure to notify an under-assessment is the additional amount due or payable in respect of tax as a result of correcting the inaccuracy or assessment." (FA 2007, Sch 24, para 5(1))

Includes amount repayable to HMRC

"(2)     The reference in sub-paragraph (1) to the additional amount due or payable includes a reference to—

(a)     an amount payable to HMRC having been erroneously paid by way of repayment of tax, and

(b)     an amount which would have been repayable by HMRC had the inaccuracy or assessment not been corrected." (FA 2007, Sch 24, para 5(2))

 

Tax includes NICs

"(3)     In sub-paragraph (1) “tax” includes national insurance contributions." (FA 2007, Sch 24, para 5(3))

 

Disregard group relief and deferred relief for s.455 tax (repayment of loan to participator)

"(4)     The following shall be ignored in calculating potential lost revenue under this paragraph—

(a)     group relief, and

(b)     any relief under section 458 of CTA 2010 (relief in respect of repayment etc of loan) which is deferred under subsection (5) of that section;

(but this sub-paragraph does not prevent a penalty being charged in respect of an inaccurate claim for relief)." (FA 2007, Sch 24, para 5(4))

Potential lost revenue

- Multiple errors

 

Correct errors in order of seriousness (least serious first)

"(1)     Where P is liable to a penalty under paragraph 1 in respect of more than one inaccuracy, and the calculation of potential lost revenue under paragraph 5 in respect of each inaccuracy depends on the order in which they are corrected—

(a)     careless inaccuracies shall be taken to be corrected before deliberate inaccuracies, and

(b)     deliberate but not concealed inaccuracies shall be taken to be corrected before deliberate and concealed inaccuracies." (FA 2007, Sch 24, para 6(1))

 

Take account of overstatements in documents which relate to the same period

"(2)     In calculating potential lost revenue where P is liable to a penalty under paragraph 1 in respect of one or more understatements in one or more documents relating to a tax period, account shall be taken of any overstatement in any document given by P which relates to the same tax period.

(3)     In sub-paragraph (2)—

(a)     “understatement” means an inaccuracy that satisfies Condition 1 of paragraph 1, and

(b)     “overstatement” means an inaccuracy that does not satisfy that condition." (FA 2007, Sch 24, para 5(2) - (3))

 

Order of setting off overstatements

"(4)     For the purposes of sub-paragraph (2) overstatements shall be set against understatements in the following order—

(a)     understatements in respect of which P is not liable to a penalty,

(b)     careless understatements,

(c)     deliberate but not concealed understatements, and

(d)     deliberate and concealed understatements." (FA 2007, Sch 24, para 6(4))

 

No account taken of over-payments by other persons

"(5)     In calculating for the purposes of a penalty under paragraph 1 potential lost revenue in respect of a document given by or on behalf of P no account shall be taken of the fact that a potential loss of revenue from P is or may be balanced by a potential over-payment by another person (except to the extent that an enactment requires or permits a person's tax liability to be adjusted by reference to P's)." (FA 2007, Sch 24, para 6(5))

- Multiple errors

- Losses (potential lost revenue)

 

Meaning of loss

"(e)     a reference to a loss includes a reference to a charge, expense, deficit and any other amount which may be available for, or relied on to claim, a deduction or relief," (FA 2007, Sch 24, para 28)

Loss wholly used to reduce tax: apply normal rules

"(1)     Where an inaccuracy has the result that a loss is wrongly recorded for purposes of direct tax and the loss has been wholly used to reduce the amount due or payable in respect of tax, the potential lost revenue is calculated in accordance with paragraph 5." (FA 2007, Sch 24, para 7(1))

 

Loss not wholly used to reduce tax: PLR is 10% of loss not used to reduce tax

"(2)     Where an inaccuracy has the result that a loss is wrongly recorded for purposes of direct tax and the loss has not been wholly used to reduce the amount due or payable in respect of tax, the potential lost revenue is—

(a)     the potential lost revenue calculated in accordance with paragraph 5 in respect of any part of the loss that has been used to reduce the amount due or payable in respect of tax, plus

(b)     10% of any part that has not." (FA 2007, Sch 24, para 7(2))

 

No PLR if no reasonable prospect of loss being used

"(5)     The potential lost revenue in respect of a loss is nil where, because of the nature of the loss or P's circumstances, there is no reasonable prospect of the loss being used to support a claim to reduce a tax liability (of any person)." (FA 2007, Sch 24, para 7(5))

Applies whether loss reduced or no loss but for inaccuracy

"(3)     Sub-paragraphs (1) and (2) apply both—

(a)     to a case where no loss would have been recorded but for the inaccuracy, and

(b)     to a case where a loss of a different amount would have been recorded (but in that case sub-paragraphs (1) and (2) apply only to the difference between the amount recorded and the true amount)." (FA 2007, Sch 24, para 7(3))

Group of companies with loss

"(4)     Where an inaccuracy has the effect of creating or increasing an aggregate loss recorded for a group of companies—

(a)     the potential lost revenue shall be calculated in accordance with this paragraph, and

(b)     in applying paragraph 5 in accordance with sub-paragraphs (1) and (2) above, group relief may be taken into account (despite paragraph 5(4)(a))." (FA 2007, Sch 24, para 7(4))

- Losses (potential lost revenue)

- Delayed tax (potential lost revenue)

 

PLR is 5% of tax for each year of delay

"(1)     Where an inaccuracy resulted in an amount of tax being declared later than it should have been (“the delayed tax”), the potential lost revenue is—

(a)     5% of the delayed tax for each year of the delay, or

(b)     a percentage of the delayed tax, for each separate period of delay of less than a year, equating to 5% per year." (FA 2007, Sch 24, para 8(1))

 

Does not apply where paragraph 7 (losses) applies

"(2)     This paragraph does not apply to a case to which paragraph 7 applies." (FA 2007, Sch 24, para 8(2))

- Delayed tax (potential lost revenue)

- PLR not reduced because tax assessment out of time

 

"[91] We agree with the decision of the Tribunal in Albany Fish Bar and adopt their reasoning. Accordingly, we find that the penalty is not to be reduced because the assessments for VAT periods 03/13, 06/13 and 09/13 were out of time." (Albany Fish Bar Limited v. HMRC [2021] UKFTT 221 (TC), Judge Redston)

"[156] Although Sch 24 introduced a new concept, PLR, which the Notes on Clauses say replaced the concept of “VAT evaded or sought to be evaded”, there is no indication in either the wording of the new penalty provisions, or in those Notes, that Parliament intended to introduce “a requirement that the amount of the penalty be fixed only by reference to the amount of the VAT finally determined to be due”. That would be a significant change from the earlier penalty position, and if it had been intended, we think it likely that the Notes would have referred to it.

[157]  For all those reasons, we find that the penalty is not to be reduced because the assessment of the earlier periods has been set aside." (Maxxim Residential Design Limited v. HMRC [2023] UKFTT 474 (TC), Judge Geraint Williams)

Reductions for disclosure: meaning of disclosure

Domestic matter, careless offshore, supply of false information or failure to disclose under-assessment

"(A3)     Sub-paragraph (1) applies where a person discloses—

(a)     an inaccuracy that involves a domestic matter,

(b)     a careless inaccuracy that involves an offshore matter,

(c)     a supply of false information or withholding of information, or

(d)     a failure to disclose an under-assessment.

(1)     A person discloses an inaccuracy, a supply of false information or withholding of information, or a failure to disclose an under-assessment by—

(a)     telling HMRC about it,

(b)     giving HMRC reasonable help in quantifying the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment, and

(c)     allowing HMRC access to records for the purpose of ensuring that the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment is fully corrected." (FA 2007, Sch 24, para 9(A3) - (1))

 

Deliberate inaccuracy or offshore matter (additional information required)

 

"(1A)     Sub-paragraph (1B) applies where a person discloses—

(a)     a deliberate inaccuracy (whether concealed or not) that involves an offshore matter, or

(b)     an inaccuracy that involves an offshore transfer.

(1B)     A person discloses the inaccuracy by—

(a)     telling HMRC about it,

(b)     giving HMRC reasonable help in quantifying the inaccuracy,

(c)     allowing HMRC access to records for the purpose of ensuring that the inaccuracy is fully corrected, and

(d)     providing HMRC with additional information.

(1C)     The Treasury must make regulations setting out what is meant by “additional information” for the purposes of sub-paragraph (1B)(d).

(1D)     Regulations under sub-paragraph (1C) are to be made by statutory instrument.

(1E)     An instrument containing regulations under sub-paragraph (1C) is subject to annulment in pursuance of a resolution of the House of Commons." (FA 2007, Sch 24, para 9(1A) - (1E))

 

Additional information

"The additional information required for the purposes of paragraph 9(1B)(d) of Schedule 24 to the Finance Act 2007, paragraph 12(2B)(d) of Schedule 41 to the Finance Act 2008 and paragraph 14(2B)(d) of Schedule 55 to the Finance Act 2009, is that a person (“P”) must—

(a)     tell HMRC whether or not regulations 4 or 5 (or both) apply to P; and

(b)     provide HMRC with the information specified in relation to those regulations set out in regulations 6 and 7 (as appropriate)." (SI 2017/345, r.3)

Conduct facilitated by another

"This regulation applies to P if there is a person (“the enabler”) who encouraged, assisted or otherwise facilitated the conduct by P giving rise to the penalty in question." (SI 2017/345, r.4)

"The additional information to be provided to HMRC where regulation 4 applies to P is—

(a)     the name and address of the enabler;

(b)     a description of the enabler's conduct that encouraged, assisted or otherwise facilitated the conduct by P giving rise to the penalty in question;

(c)     a description of how the first contact between P and the enabler was made and how the contact was maintained during the times when the enabler's conduct encouraged, assisted or otherwise facilitated the conduct by P giving rise to the penalty in question; and

(d)     a description of all documents held by P relating to the enabler's conduct that encouraged, assisted or otherwise facilitated the conduct by P giving rise to the penalty in question."  (SI 2017/345, r.6)

Offshore assets in legal name of another

"This regulation applies to P if—

(a)     P is the sole or a joint beneficial owner of an asset (“the asset”) situated or held in a territory outside the United Kingdom; and

(b)     the person holding the asset (“the asset holder”) is not P." (SI 2017/345, r.5)

"The additional information to be provided to HMRC where regulation 5 applies to P is—

(a)     the name and address of any other joint beneficial owner of the asset;

(b)     the extent of P's share of the beneficial ownership of the asset;

(c)     a description of all documents of title or other documents indicating P's beneficial ownership of the asset;

(d)     details of where the asset is situated or held;

(e)     details of when and how P became a beneficial owner of the asset (including a description of all documents held by P relating to the acquisition of P's beneficial ownership of the asset);

(f)     a description of all changes in the arrangements for the ownership of the asset since P became a beneficial owner of it (including the date of any change in the arrangements and a description of all documents held by P relating to such changes);

(g)     the names and last known addresses of all persons who have been asset holders of the asset during P's beneficial ownership of it; and

(h)     in relation to an asset holder who is not an individual, the name and business address (if known) of any director, senior manager, employee or agent of the asset holder who has advised or assisted P in relation to P's beneficial ownership of the asset." (SI 2017/345, r.7)

Information relating to a document

"(1)     A description of a document provided in accordance with regulations 6 or 7 must (as far as it is reasonably practicable to do so) state in relation to the document—

(a)     the latest of the date when the document was made, prepared or, if appropriate, signed or executed;

(b)     the person who made or prepared it (and the person on whose behalf it was made or prepared if different);

(c)     the person who signed or executed the document (if appropriate);

(d)     the person to whom the document was given or sent (if appropriate);

(e)     a summary of its contents or the information recorded in the document;

(f)     the location of the document or where it may be inspected.

(2)     The requirement to provide a description of a document in accordance with regulations 6 or 7 may be met by the provision of the document in question to HMRC or a suitable copy of it.

(3)     The provision of a document (or a copy of it) to HMRC as described in paragraph (2) is without prejudice to any requirement to produce the document in question to HMRC or power of HMRC to require the production of the document." (SI 2017/345, r.8)

Reductions for disclosure: meaning of disclosure

- Meaning of prompted

 

"(2)     Disclosure—

(a)     is “unprompted” if made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the inaccuracy, the supply of false information or withholding of information, or the under-assessment, and

(b)     otherwise, is “prompted”." (FA 2007, Sch 24, para 9(2))

- Meaning of prompted

- Meaning of quality of disclosure

 

"(3)     In relation to disclosure “quality” includes timing, nature and extent." (FA 2007, Sch 24, para 9(3))

- Meaning of quality of disclosure

- Extent of reduction: domestic matters, supply of false information, failure to disclose under-assessment

 

"(A1)     Paragraph 10 provides for reductions in penalties—

(a)     under paragraph 1 where a person discloses an inaccuracy that involves a domestic matter,

(b)     under paragraph 1A where a person discloses a supply of false information or withholding of information, and

(c)     under paragraph 2 where a person discloses a failure to disclose an under-assessment." (FA 2007, Sch 24, para 9(A1))

"(1)     If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure.

(2)     But the standard percentage may not be reduced to a percentage that is below the minimum shown for it—

(a)     in the case of a prompted disclosure, in column 2 of the Table, and

(b)     in the case of an unprompted disclosure, in column 3 of the Table." (FA 2007, Sch 24, para 10)

- Extent of reduction: domestic matters, supply of false information, failure to disclose under-assessment
Standard %
Minimum % for prompted disclosure
Minimum % for unprompted disclosure
30
15
0
70
35
20
100
50
30
- Extent of reduction: offshore matters

- Extent of reduction: offshore matters

"(A2)     Paragraph 10A provides for reductions in penalties under paragraph 1 where a person discloses an inaccuracy that involves an offshore matter or an offshore transfer." (FA 2007, Sch 24, para 9(A2))

"(1)     If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure.

(2)     But the standard percentage may not be reduced to a percentage that is below the minimum shown for it—

(a)     in the case of a prompted disclosure, in column 2 of the Table, and

(b)     (b)     in the case of an unprompted disclosure, in column 3 of the Table." (FA 2007, Sch 24, para 10)

Standard %
Minimum % for prompted disclosure
Minimum % for unprompted disclosure
30
15
0
37.5
18.75
0
45
22.5
0
60
30
0
70
45
30
87.5
53.75
35
100
60
40
105
62.5
40
125
72.5
50
140
80
50
150
85
55
200
110
70

Special circumstances reduction

 

"(1)     If they think it right because of special circumstances, HMRC may reduce a penalty under paragraph 1, 1A or 2.

(2)     In sub-paragraph (1) “special circumstances” does not include—

(a)     ability to pay, or

(b)     the fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment by another.

(3)     In sub-paragraph (1) the reference to reducing a penalty includes a reference to—

(a)     staying a penalty, and

(b)     agreeing a compromise in relation to proceedings for a penalty." (FA 2007, Sch 24, para 11)

See further: V7: Special circumstances

Special circumstances reduction

Interaction with other penalties and sanctions

Interaction with other penalties and sanctions

- Reduce penalty by amount of most other penalties calculated by reference to same tax liability

 

"(2)     The amount of a penalty for which P is liable under paragraph 1 or 2 in respect of a document relating to a tax period shall be reduced by the amount of any other penalty incurred by P, or any surcharge for late payment of tax imposed on P, if the amount of the penalty or surcharge is determined by reference to the same tax liability.

(2A)     In sub-paragraph (2) “any other penalty” does not include a penalty under Part 4 of FA 2014 (penalty where corrective action not taken after follower notice etc) or Schedule 22 to FA 2016 (asset-based penalty)

(3)     In the application of section 97A of TMA 1970 (multiple penalties) no account shall be taken of a penalty under paragraph 1 or 2." (FA 2007, Sch 24, para 12(2) - (3))

- Reduce penalty by amount of most other penalties calculated by reference to same tax liability

- No liability where VATA s.69C penalty assessed

 

"(1)     A person is not liable to a penalty under paragraph 1 in respect of an inaccuracy if—

(a)     the inaccuracy involves a claim by the person to exercise or rely on a VAT right (in relation to a supply) that has been denied or refused by HMRC as mentioned in subsection (4) of section 69C of VATA 1994, and

(b)     the person has been assessed to a penalty under that section (and the assessment has not been successfully appealed against or withdrawn).

(2)     In sub-paragraph (1)(a) “VAT right” has the same meaning as in section 69C of VATA 1994." (FA 2007, Sch 24, para 21ZA)

- No liability where VATA s.69C penalty assessed

- Double jeopardy

 

"A person is not liable to a penalty under paragraph 1, 1A or 2 in respect of an inaccuracy or failure in respect of which the person has been convicted of an offence." (FA 2007, Sch 24, para 21ZA)

- Double jeopardy

Partnerships: partners liable to penalty in proportion to tax liability

 

"(1)     This paragraph applies where P is liable to a penalty under paragraph 1 for an inaccuracy in or in connection with a partnership return.

(2)     Where the inaccuracy affects the amount of tax due or payable by a partner of P, the partner is also liable to a penalty (“a partner's penalty”).

(3)     Paragraphs 4 to 13 and 19 shall apply in relation to a partner's penalty (for which purpose a reference to P shall be taken as a reference to the partner).

(4)     Potential lost revenue shall be calculated separately for the purpose of P's penalty and any partner's penalty, by reference to the proportions of any tax liability that would be borne by each partner.

(5)     Paragraph 14 shall apply jointly to P's penalty and any partner's penalties.

(6)     P may bring an appeal under paragraph 15 in respect of a partner's penalty (in addition to any appeal that P may bring in connection with the penalty for which P is liable)." (FA 2007, Sch 24, para 20)

Partnerships: partners liable to penalty in proportion to tax liability

Personal liability notices for company directors/managers

 

"(1)     Where a penalty under paragraph 1 is payable by a company for a deliberate inaccuracy which was attributable to an officer of the company, the officer is liable to pay such portion of the penalty (which may be 100%) as HMRC may specify by written notice to the officer.

(2)     Sub-paragraph (1) does not allow HMRC to recover more than 100% of a penalty." (FA 2007, Sch 24, para 19)

 

Company: officer means director, manager, secretary

"(3)     In the application of sub-paragraph (1) to a body corporate other than a limited liability partnership “officer” means—

(a)     a director (including a shadow director within the meaning of section 251 of the Companies Act 2006 (c 46)), 

(aa)     a manager, and

(b)     a secretary." (FA 2007, Sch 24, para 19)

 

LLP: officer means member

"(3A)     In the application of sub-paragraph (1) to a limited liability partnership, “officer” means a member." (FA 2007, Sch 24, para 19)

Company includes unincorporated association and applies to persons managing or purporting to manage

"(6)     In this paragraph “company” means any body corporate or unincorporated association, but does not include a partnership, a local authority or a local authority association." (FA 2007, Sch 24, para 19)

"(4)     In the application of sub-paragraph (1) in any other case “officer” means—

(a)     a director,

(b)     a manager,

(c)     a secretary, and

(d)     any other person managing or purporting to manage any of the company's affairs." (FA 2007, Sch 24, para 19)

Personal liability notices for company directors/managers

- Procedural aspects of personal liability notice

 

Special circumstances apply

"(5)     Where HMRC have specified a portion of a penalty in a notice given to an officer under sub-paragraph (1)—

(a)     paragraph 11 applies to the specified portion as to a penalty," (FA 2007, Sch 24, para 19(5))

Payment within 30 days

"(b)     the officer must pay the specified portion before the end of the period of 30 days beginning with the day on which the notice is given, (FA 2007, Sch 24, para 19(5))

Time limit same as for penalty assessment

"(c)     paragraph 13(2), (3) and (5) apply as if the notice were an assessment of a penalty, (FA 2007, Sch 24, para 19(5))

Supplementary notice

"(d)     a further notice may be given in respect of a portion of any additional amount assessed in a supplementary assessment in respect of the penalty under paragraph 13(6)," (FA 2007, Sch 24, para 19(5))

 

Same appeal procedure as if penalty assessment 

"(e)     paragraphs 15(1) and (2), 16 and 17(1) to (3) and (6) apply as if HMRC had decided that a penalty of the amount of the specified portion is payable by the officer, and" (FA 2007, Sch 24, para 19(5))

 

Double jeopardy rule applies

"(f)     paragraph 21 applies as if the officer were liable to a penalty." (FA 2007, Sch 24, para 19(5))

- Procedural aspects of personal liability notice
Assessment and appeals

VAT: inaccuracies in EC sales statements

 

VATA 1994, s.65

VAT: inaccuracies in EC sales statements

IHT: person not liable fraudulently or negligently providing incorrect information

 

"(3)     Any person not liable for tax on the value transferred by a chargeable transfer who fraudulently or negligently furnishes or produces to the Board any incorrect information or document in connection with the transfer shall be liable to a penalty not exceeding £3,000." (IHTA 1984, s.247(3))

IHT: person not liable fraudulently or negligently providing incorrect information

IHT: failure to remedy errors

 

"(1)     If after any information or document has been furnished or produced by any person without fraud or negligence it comes to his notice that it was incorrect in any material respect it shall be treated for the purposes of section 247 above as having been negligently furnished or produced unless the error is remedied without unreasonable delay.

(2)     If after any account, information or document has been delivered, furnished or produced by any person in pursuance of this Part of this Act it comes to the notice of any other person that it contains an error whereby tax for which that other person is liable has been or might be underpaid, that other person shall inform the Board of the error; and if he fails to do so without unreasonable delay he shall be liable to the penalty to which he would be liable if the account, information or document had been delivered, furnished or produced by him and the case were one of negligence." (IHTA 1984, s.248)

IHT: failure to remedy errors
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