ARCHIVED: This Practice Note has been archived and is not maintained. HMRC has the power to charge a penalty where there are errors in, or omissions from, tax returns. The penalty regime in operation prior to 1 April 2009 (known as 'old penalties') differs from the current regime (known as 'new penalties'). The two regimes run alongside each other and will continue to do so for a number of years, as the basis for applying penalties depends on the original filing date and period of the tax returns concerned. For more on the new penalties in Schedule 24 to the Finance Act 2007, see: Penalties for inaccuracies in returns—introduction to the regime. What periods are covered by the old regime? The old penalties regime applies to tax returns with a filing date up to and including 31 March 2009. For income tax, capital gains tax and Class 4 national insurance contributions, old penalties apply to tax returns up to and including the 2007/08 return. For corporation tax and VAT, old penalties

FORTHCOMING CHANGE relating to penalty reform calls for evidence and behavioural penalties reform: At Budget 2025, the government published a summary of responses to the consultation launched at Spring Statement 2025 on behavioural penalties reform and announced its intention to proceed with proposals to reform penalties for inaccuracies in tax returns and for failures to notify chargeability. This consultation followed two calls for evidence: • an initial call for evidence on ‘The Tax Administration Framework: Supporting a 21st Century tax system’ of 23 March 2021 and a summary of responses on 30 November 2021, and • a second call for evidence on ‘The Tax Administration Framework Review–enquiry and assessment powers, penalties, safeguards’, of 15 February 2024, followed by a summary of responses of 30 October 2024—this second call for evidence included potential options for the reform of penalties, including the reform of penalty suspension and penalty escalation for continued or repeated non-compliance The consultation outcome published at Budget 2025 sets out the government’s intention to develop draft legislation to reform

FORTHCOMING CHANGE relating to penalty reform calls for evidence and behavioural penalties reform: At Budget 2025, the government published a summary of responses to the consultation launched at Spring Statement 2025 on behavioural penalties reform and announced its intention to proceed with proposals to reform penalties for inaccuracies in tax returns and for failures to notify chargeability. This consultation followed two calls for evidence: • an initial call for evidence on ‘The Tax Administration Framework: Supporting a 21st Century tax system’ on 23 March 2021 and a summary of responses on 30 November 2021, and • a second call for evidence on ‘The Tax Administration Framework Review–enquiry and assessment powers, penalties, safeguards’, on 15 February 2024, followed by a summary of responses on 30 October 2024—this second call for evidence included potential options for the reform of penalties, including the reform of penalty suspension and penalty escalation for continued or repeated non-compliance The consultation outcome published at Budget 2025 sets out the government’s intention to develop draft legislation to reform the existing behavioural

FORTHCOMING CHANGE relating to penalty reform calls for evidence and behavioural penalties reform: At Budget 2025, the government published a summary of responses to the consultation launched at Spring Statement 2025 on behavioural penalties reform and announced its intention to proceed with proposals to reform penalties for inaccuracies in tax returns and for failures to notify chargeability. This consultation followed two calls for evidence: • an initial call for evidence on ‘The Tax Administration Framework: Supporting a 21st Century tax system’ on 23 March 2021 and a summary of responses on 30 November 2021, and • a second call for evidence on ‘The Tax Administration Framework Review–enquiry and assessment powers, penalties, safeguards’, on 15 February 2024, followed by a summary of responses on 30 October 2024—this second call for evidence included potential options for the reform of penalties, including the reform of penalty suspension and penalty escalation for continued or repeated non-compliance The consultation outcome published at Budget 2025 sets out the government’s intention to develop draft legislation to reform

A tougher penalties regime applies to an individual's tax liabilities where non-compliance involves an offshore matter or an offshore transfer. This Practice Note considers: • the meaning of offshore matter and offshore transfer • requirement to correct and failure to correct penalties • penalties for offshore matters or offshore transfers • offshore assets moves penalties, and • asset-based penalties This Practice Note considers issues that are specific to the civil penalties and sanctions affecting offshore tax non-compliance. For guidance on the general penalty regime, see: Tax penalties, interest and time limits—overview, which links to more detailed content. For guidance on measures affecting offshore tax evaders committing a criminal offence, persons enabling offshore tax evasion, or corporates and other relevant bodies facilitating UK and offshore tax evasion, see Practice Note: Offshore penalties, sanctions and criminal offences—outline. HMRC guidance on the regime can be found in Compliance checks: Penalties for offshore non-compliance—CC/FS17 and CH112100. Also see: Timeline of penalties, sanctions and criminal offences in relation to offshore tax matters. What is an offshore matter? An inaccuracy,

The Competition and Markets Authority (CMA) and sectoral regulators with concurrent competition powers may impose fines of up to 10% of turnover on an undertaking that is found to have violated a provision of UK competition law (namely, the Chapter I and II prohibitions of the Competition Act 1998) (until 31 December 2020, the CMA could also issue fines at the same level for breaches of Articles 101 and 102 TFEU). The maximum penalty is calculated by reference to the undertaking’s worldwide turnover in the last business year—the maximum fine that the CMA (or sector regulators with concurrent competition enforcement powers) can impose is 10% of an undertaking's worldwide turnover. In this context, an undertaking's last business year is the financial year preceding the date when the infringement ended. In imposing penalties, the CMA (and sectoral regulators) will be guided by the principle that the penalty must be proportionate to both the relevant turnover (ie turnover derived from the product to which the infringement relates) and the total turnover (ie turnover of all products of the undertaking). The

Pensions analysis: The First-tier Tribunal dismissed the appeals of two pension scheme administrators against penalties imposed by HMRC for failing to comply with Information Notices issued to the appellants under Schedule 36 to the Finance Act 2008 (FA 2008). From the evidence before the tribunal, neither of the appellants took objectively appropriate steps to consider whether it was reasonable to rely on the advisers and the advice provided. Neither of the appellants took reasonable care to check that they could rely on the advice being provided in circumstances where a reasonable and prudent taxpayer would have asked questions given the information being provided to them. Their actions were not those of objectively reasonable reliance on advice. Written by Scott Redpath, barrister at Temple Tax Chambers.

A penalty clause is one that determines the sum or penalty that must be paid on a contractual breach, but where that sum is greater than the likely loss resulting from that breach. When a sum specified as payable is extravagant or totally out of proportion to the range of possible losses that might be incurred, the provision will be a penalty and unenforceable to the extent that the sum is greater than the party’s actual loss.

Introduction This Practice Note discusses the rule against penalties and how it applies to interest rates in commercial contracts, including a discussion of the late payment legislation in the UK. The Commercial Payments Bill was introduced to Parliament in May 2026 and is likely to have a significant impact on contractual payment provisions, interest on late payments, invoice dispute mechanisms, increased reporting on payment practices and increased powers of the Small Business Commissioner. For more information, see below and News Analysis: Commercial Payments Bill: practical implications for commercial lawyers and Practice Note: Commercial—horizon scanner. As part of the freedom of contract in business to business contracts, parties can prescribe the consequences of a breach of contract. Whether the courts will uphold those provisions in a given factual setting is a different matter. Where the parties choose to do so, those consequences are commonly an obligation to make a payment of an agreed sum. The sum may be a fixed amount or determined by reference to a formula. Penalty interest rates are an example of the latter. A

FORTHCOMING CHANGE relating to penalty reform calls for evidence and behavioural penalties consultation: Building on a previous 2021 call for evidence, on 15 February 2024, HMRC published a further call for evidence entitled The Tax Administration Framework Review: enquiry and assessment powers, penalties safeguards, which included potential options for the reform of penalties, including the reform of penalty suspension and penalty escalation for continued or repeated non-compliance. On 30 October 2024, HMRC published the outcome of the call for evidence providing a summary of responses and the government’s next steps. Following up on this, at Spring Statement 2025 on 26 March 2025, the government published a consultation on behavioural penalties reform in relation to penalties for inaccuracies in returns and failure to notify. The consultation proposes two different approaches for reform of these penalty regimes: (1) reforming the existing framework but simplifying how penalties are calculated and applied, and (2) exploring an alternative model for a more fundamental redesign, including a proposed clear division between the penalty charged for inaccuracies

FORTHCOMING CHANGE relating to penalty reform calls for evidence and behavioural penalties reform: At Budget 2025, the government published a summary of responses to the consultation launched at Spring Statement 2025 on behavioural penalties reform and announced its intention to proceed with proposals to reform penalties for inaccuracies in tax returns and for failures to notify chargeability. This consultation followed two calls for evidence: • an initial call for evidence on ‘The Tax Administration Framework: Supporting a 21st Century tax system’ on 23 March 2021 and a summary of responses on 30 November 2021, and • a second call for evidence on ‘The Tax Administration Framework Review–enquiry and assessment powers, penalties, safeguards’, on 15 February 2024, followed by a summary of responses on 30 October 2024—this second call for evidence included potential options for the reform of penalties, including the reform of penalty suspension and penalty escalation for continued or repeated non-compliance The consultation outcome published at Budget 2025 sets out the government’s intention to develop draft legislation to reform the

Arbitration analysis: In Malaysia Resources Corporation Bhd v Desaru Peace Holdings Club Sdn Bhd [2022] MLJU 3355, the High Court of Malaya dismissed an application for security for costs made under s.11 of the Malaysian Arbitration Act 2005 (‘Arbitration Act 2005’) in a dispute which was pending arbitration. The court’s reasoning was as follows: