Calculating the penalty for inaccuracies in returns - behaviour of the taxpayer

By Tolley in association with Philip Rutherford
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The following Corporation Tax guidance note by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Calculating the penalty for inaccuracies in returns - behaviour of the taxpayer
  • Introduction
  • Rates
  • Behaviours
  • Determining the behaviour

Introduction

The rate of the penalty chargeable on the taxpayer under the new penalty regime is based on the behaviour of the taxpayer and whether the error came to light from an unprompted or prompted disclosure. Once these factors have been decided, a penalty is calculated based on the potential lost revenue (PLR). The PLR is the extra tax due as a result of correcting the inaccuracy or under-assessment. See the Calculating the penalty for inaccuracies - potential lost revenue guidance note.

The behaviours are:

  • reasonable care – where a taxpayer has taken reasonable care but despite this has made a mistake then no penalty will be due
  • careless – means a failure to take reasonable care
  • deliberate – a deliberate inaccuracy occurs where a person knowingly and intentionally gives HMRC an inaccurate document
  • deliberate and concealed – a document containing a deliberate inaccuracy is given to HMRC and active steps are taken to cover up the inaccuracy before or after the document has been sent to HMRC

These behaviours are discussed further below.

The amount of the penalty can be reduced depending on whether the disclosure is prompted or unprompted and the quality of the disclosure by the taxpayer. This is discussed further in the Penalty reductions for inaccuracies guidance note.

Rates

The penalty rates are divided into bands depending on the behaviour of the taxpayer. These bands are as follows and depend on when and how the taxpayer discloses the failure:

More on Penalties for inaccuracies in returns: