HM Revenue & Customs (HMRC) is introducing a new cross-tax penalty regime for inaccuracies in returns or other documents. Initially, the new penalties will apply to VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme for tax periods starting on or after 1 April 2008 and documents that are due to be filed on or after 1 April 2009.
The inaccurate return or other document must satisfy two conditions before HMRC can consider charging a penalty for each of any inaccuracy:
1. The document must contain an inaccuracy that results in:
- an understatement of the person’s tax liability;
- a false or inflated statement of a loss;
- a false or inflated claim to repayment of tax.
2. The inaccuracy must be careless or deliberate or deliberate and concealed.
A penalty can also be charged where a person does not notify HMRC of an understated assessment or of an inaccuracy they discover after a document has been filed.
The penalty percentages are applied to the Potential Lost Revenue (PLR), the extra tax payable or not repayable, depending on the person’s behaviour (whether the inaccuracy was careless, deliberate or deliberate and concealed). All other allowable deductions and reliefs, except Group Relief, can be taken into account.
No penalty will be charged if a person taking reasonable care submits an incorrect tax return.
Any amount of reduction of the penalty is dependant on whether the disclosure is prompted or unprompted (one where the person making it has no reason to believe that HMRC has discovered or is about to discover the inaccuracy or under-assessment) and the quality of the disclosure, which can be enhanced by telling and helping HMRC and then responding positively to requests for access to records.
The maximum and minimum penalty applied to the PLR where a person has delivered an inaccurate document, for each type of behaviour, are if the inaccuracy:
- arose due to carelessness, a maximum of 30% and reduced to a minimum of 0% for an unprompted disclosure and 15% for a prompted disclosure;
- was deliberate, a maximum of 70% and reduced to a minimum of 20% for an unprompted disclosure and 35% for a prompted disclosure; and
- was deliberate and the person concealed it, a maximum of 100% and reduced to a minimum of 30% for an unprompted disclosure and 50% for a prompted disclosure.
If you have any queries, please contact Tax Partner Fiona Cross on 020 7467 4000. Alternatively get in touch with your usual Vantis contact to discuss any issues regarding the new tax penalty regime.