A4.531 When penalties for inaccuracy apply
The harmonised penalty regime applies where a person gives HMRC a document containing an inaccuracy (see A4.532 for the meaning of document and inaccuracy in this context) leading to one of the following1:
(a) an understatement of liability to tax
(b) a false or inflated claim to a loss
(c) a false of inflated claim to repayment of tax
and the inaccuracy was careless or deliberate on that person's part. Third party penalties and those imposed where a taxpayer fails to notify HMRC of an under-assessment are discussed below.
Errors which have no tax consequences, such as a mistake over an address, cannot be the subject to a penalty as they do not meet the above definition of an inaccuracy from which a tax error arises.
A penalty cannot be imposed unless HMRC can show that the inaccuracy in the document resulted from a degree of culpability on the part of the taxpayer. There are three degrees of culpability:
• deliberate conduct with an arrangement to conceal the inaccuracy (see A4.567A)
• deliberate conduct without any such arrangement (see A4.567A), and
• carelessness, which is defined as 'failure to take reasonable care' (see A4.532A, which also discusses HMRC guidance on where it might agree that a mistake has been made even though the taxpayer took reasonable care and as such no penalty is due)
The penalty is imposed on the basis of a particular inaccuracy rather than a