Penalty rates and structure for inaccuracies in returns

By Tolley in association with Philip Rutherford
Employment_tax_img5

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

  • Penalty rates and structure for inaccuracies in returns
  • Penalty regime overview
  • Taxes to which the penalty regime applies
  • Events triggering penalties

Penalty regime overview

The current penalty regime for errors in returns and documents has been in place since 1 April 2009, although it was extended with effect from 1 April 2010. The main legislation is FA 2007, s 97, Sch 24 and FA 2008, s 122, Sch 40. This legislation was brought in to harmonise the penalty regime across all of the major taxes.

The main aim of the legislation is:

  • to provide an aligned penalty regime across direct and indirect taxes
  • to provide a deterrent to non-compliance by penalising those who fail to comply
  • to encourage the non-compliant to return voluntarily to compliance

HMRC made it clear in the consultation leading to the introduction of these provisions that it felt higher penalties were appropriate for those who did not disclose errors unless prompted and / or did not cooperate in a check of the returns. The tiered penalty regime is therefore intended to give fairer and more proportionate results for offences of differing levels of behaviour.

The basis of calculation of penalties is a two stage process:

  • calculate a percentage, based on the taxpayer’s behaviour (see the Calculating the penalty for inaccuracies in returns - behaviour of the taxpayer guidance note)
  • calculate the potential lost revenue (PLR). This 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 result of these two calculations gives the amount of the penalty.

A simplified summary of t

More on Penalties: