A4.536 Penalties for inaccuracy—equivalent penalties under pre-harmonised regime

Introduction

Under the equivalent pre-harmonised penalty regime, HMRC could impose a penalty in respect of an error in a specified type of document which resulted from fraud or negligence on the part of the taxpayer¹.

As there is a time limit of 20 years for HMRC to raise an assessment in a case where the taxpayer has acted fraudulently, penalties will still be imposed under the pre-harmonised regime, albeit with increasing rarity, until the early 2030s.

Penalties were most commonly imposed for:

1.  

   •     incorrect returns of accounts for income tax or capital gains²

2.  

   •     incorrect partnership returns or accounts³

3.  

   •     incorrect returns, statements, or declarations by a company in connection with any claim for any allowance, deduction, or relief⁴

4.  

   •     failing to correct a return or accounts after the error had come to the taxpayer's notice⁵

5.  

   •     assisting in the preparation of incorrect returns of another person⁶

Calculation of penalties

The general principle was that the maximum penalty was an amount equal to the 'tax difference'. In a case where the taxpayer paid too little, the tax difference was the difference between:

1.  

   •     the amount of tax (and NIC) correctly payable for the relevant year(s) of assessment or accounting period, including tax deducted at source and not repayable, and

2.  

   •     the amount which would have been so payable on the basis of the incorrect return

In a case of excessive repayment, the tax difference was calculated on the basis that a repayment represents a negative amount