New Penalties
HMRC has new powers in respect of how it calculates penalties on most types of unpaid taxes that arise from inaccurate returns with periods starting on or after 1st April 2008. Although the intention was for the penalty regime to be simplified, the new system is incredibly detailed, and the information below is a brief overview. We strongly recommend that you take specialist advice should you believe you may be liable to a penalty.
Penalties are now linked to the behaviour that caused the return to be incorrect, and each type of behaviour has different penalty ranges. A new concept of 'suspended penalties' has also been introduced.
The penalty band is initially based on two factors - what behaviour caused the error, and whether the person told HMRC about the error without any prompting (in practice, this will normally mean telling HMRC before they have been in touch about it).
If the inaccuracy was caused:
- Despite "reasonable care" being taken, there will be no penalty.
- By "carelessness", the penalty will be 0-30% for an unprompted disclosure and 15-30% for a prompted disclosure.
- By "deliberate behaviour" (i.e. knowingly) the penalty will be 20% - 70% for an unprompted disclosure and 35% - 70% for a prompted disclosure.
- By "deliberate and concealed behaviour" (knowingly and then trying to cover up the fact) the penalty will be between 30%-100% for an unprompted disclosure and 50%-100% for a prompted disclosure.
The level of penalty within the band is then determined by the extent that HMRC is told about the inaccuracy, helped in establishing the correct figures, and given access to documents they believe to be relevant.
It is obvious from the above that how the behaviour is determined can significantly affect the penalty. In addition, from 1st April 2010, there will be changes to how many 'earlier years' HMRC can assess back to. Unsurprisingly, the length depends on the behaviour. It follows that the categorisation not only affects the amount of the penalty, but may also affect the amount of tax and interest that has to be paid.
Suspended penalties
These are entirely new, and give HMRC the opportunity to suspend a penalty. The penalty can only be suspended if the inaccuracy has been caused by "carelessness" (another reason why the determination of behaviour is so important). The inspector can suspend the penalty for a period of up to two years. The suspension will include conditions agreed with HMRC, and if the conditions have been met by the end of the period, the penalty will be cancelled.