Commentary

A4.531 When penalties for inaccuracy apply

Administration and compliance

A4.531 When penalties for inaccuracy apply

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:

  1.  

    (a)     an understatement of liability to tax

  2.  

    (b)     a false or inflated claim to a loss

  3.  

    (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:

  1.  

    •     deliberate conduct with an arrangement to conceal the inaccuracy (see A4.567A)

  2.  

    •     deliberate conduct without any such arrangement (see A4.567A), and

  3.  

    •     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

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