Penalty for inaccuracies: reductions

Produced by Tolley in association with Philip Rutherford
Penalty for inaccuracies: reductions

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

  • Penalty for inaccuracies: reductions
  • Introduction
  • Prompted and unprompted disclosure
  • Unprompted disclosure
  • Prompted disclosure
  • Is the disclosure prompted or unprompted?
  • Quality of disclosure
  • Telling HMRC about the inaccuracy (maximum reduction 30%)
  • Helping HMRC quantify the inaccuracy (maximum reduction 40%)
  • Giving access to HMRC to ensure full disclosure (maximum reduction 30%)
  • More...

Introduction

Under the penalty legislation introduced by FA 2007, Sch 24, where an inaccuracy has occurred on a return or other document which leads to an understatement of tax, the taxpayer (the employer in the case of PAYE returns) is exposed to a penalty.

The rate of the penalty is based on the behaviour of the person. This rate is then applied to the potential lost revenue (PLR), which is the extra tax due as a result of correcting the inaccuracy or under-assessment, to calculate the amount of the penalty due.

See also the Penalty rates and structure for inaccuracies in returns, Calculating the penalty for inaccuracies in returns ― behaviour of the taxpayer and Calculating the penalty for inaccuracies ― potential lost revenue guidance notes.

HMRC guidance is at CH82400 onwards.

The rate of penalty can be reduced if the employer comes forward to inform HMRC about the inaccuracy. It can be reduced even further by the nature and quality of the information and documentation provided to HMRC. This is known as the quality of disclosure and is discussed in this guidance note.

Prompted and unprompted disclosure

A disclosure is unprompted if it is made at a time when the taxpayer / employer has no reason to believe that HMRC has discovered the inaccuracy or under-assessment.

Otherwise, a disclosure is prompted.

A disclosure must fall into one of these categories. There is both a smaller range of potential penalties and lower minimum level of penalty for voluntary disclosures.

BehaviourUnprompted disclosure – penalty rangePrompted disclosure – penalty range
Careless0-30%15-30%
Deliberate20-70%35-70%
Deliberate and concealed30-100%50-100%

The exact level of the penalty is determined by the quality of the disclosure which is discussed below.

Unprompted disclosure

An unprompted disclosure is one made at a time when there is no reason to believe that HMRC is aware of or is about to discover the error or under-assessment.

A disclosure can be regarded as unprompted even if full details are not provided at the time the initial

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