Penalties for inaccuracies ― calculating the penalty

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Penalties for inaccuracies ― calculating the penalty
  • Calculating the penaltyReducing the penalty amount
  • Calculating the penalty

This guidance note provides details of how a penalty for an inaccurate document is calculated and collected by HMRC. This note should be read in conjunction with the Overview of the three penalties introduced from 1 April 2010, Penalties for inaccuracies ― overview, Penalties for inaccuracies ― assessing the penalty and Penalties for inaccuracy ― agents and officers guidance notes.

CH82000; De Voil Indirect Tax Service V5.345 (subscription sensitive)

HMRC will need to ascertain the following information before it can issue a penalty for an inaccuracy:

  • the underlying behaviour demonstrated by the business that resulted in the inaccuracy
  • whether the inaccuracy by the business was as a direct result of deliberate behaviour of another person
  • the potential lost revenue (PLR) that resulted from the inaccuracy
  • whether it was a prompted or unprompted disclosure
  • the quality of disclosure made by the business

It is important to note that HMRC should advise the person that they may be liable to a penalty as soon as they become aware that it is likely even if it has not established all of the facts surrounding the case including how serious the person’s behaviour is. If HMRC advised the person during a conversation then it is important that it issues a follow up letter providing details of why it considers that a penalty is due. HMRC is required to adhere to the requirements laid down in the Human Rights Act when imposing a penalty.

Calculating the penalty
Potential lost revenue

HMRC will normally use the following as the basis for calculating the PLR in respect of a single inaccuracy.

CH82160; FA 2007, Sch 24, para 5

The PLR is the additional amount due or payable

More on Penalties: