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14.5. Interest and Penalties

There are numerous penalties which can be imposed for the failure of adhering to the self-assessment system.  This includes penalties for late filing of returns, failing to maintain appropriate records, submitting an incorrect tax return, errors in documents sent to HMRC, unreasonably failing to report errors in HMRC assessments and failing to respond to a notice of enquiry within the specified time limit.

A single penalty regime applies to incorrect returns for both direct and indirect taxes including Corporation Tax, Income Tax, Capital Gains Tax and VAT, and HMRC has the power to suspend penalties as well as the discretion to reduce penalties below the statutory minimum where it is deemed to be disproportionate or otherwise inappropriate.

There are statutory penalties for four different behaviors including making a mistake, failing to take reasonable care, making deliberate understatements and making deliberate understatements with concealment, and the standard maximum penalties are summarised below:

Reason for penalty Type of inaccuracy Maximum penalty payable
Inaccurate return or other document Careless 30% of the potential loss of revenue (“PLR”) to HMRC
Inaccurate return or other document Deliberate not concealed 70% of PLR
Inaccurate return or other document Deliberate and concealed 100% of PLR
Inaccuracy discovered later but no reasonable steps taken to inform Treated as careless 30% of PLR
Understated assessment not notified N/A 30% of PLR
Inaccuracy due to the deliberate behaviour of another person N/A 100% of PLR

In situations where the inaccuracy involves an offshore matter and the tax at stake is income tax or capital gains tax, there may be higher maximum penalty percentages for giving and inaccurate return.  HMRC also has the powers to reduce penalties depending on the quality of the disclosure, although it cannot be below the minimum amount.

There is a range of penalties for the failure to file a return or any other document on time.  The penalty is dependent on the tax which the return relates to, and how long the return or document is late.

There are also penalties which arise for a failure to pay tax on time.

Effective from 30 September 2017, the government has introduced a new corporate criminal offence legislation to prevent the facilitation of tax evasion. The new rules hold the businesses liable for tax evasion facilitated by an ‘associated person’ such as employees, agents, contractors and subsidiaries. Companies are required to put in place reasonable procedures to prevent facilitation of tax evasion.