Tax Insider Reports: HMRC Penalties

17th Jul 2019
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Think You’re Safe From Penalties? Think Again!

The range of powers available to HMRC is considerable. Those powers include an eye-watering range of penalties, which are largely aimed at ‘encouraging’ taxpayers to comply with their tax compliance obligations.

Those taxpayers who are not required to submit tax returns to HMRC might be forgiven for thinking that they are safe from being charged penalties for errors in them. However, as indicated in this section, HMRC’s penalty powers extend beyond tax return filers.

How To Avoid A Penalty For Someone Else’s Mistake!

The penalty rules for errors in tax returns, etc., were originally introduced in Finance Act 2007, and have become fairly familiar to many tax advisers (and, unfortunately, to some taxpayers on the receiving end of a penalty!).

In broad terms, a penalty arises if (for example) an individual submits a tax return that contains an error resulting in a tax liability being understated, where the error was ‘careless’ (i.e. reasonable care was not taken) or deliberate on that individual’s part (FA 2007, Sch 24, para 1).

The following table shows the penalty ranges for ‘domestic’ errors (i.e. as mentioned in the introduction, penalty percentages are generally higher where the error giving rise to the penalty involves an offshore matter):

Behaviour Maximum penalty% Minimum penalty (prompted disclosure)% MinimumPenalty




Error despite taking reasonable care No penalty No penalty No penalty
Careless 30 15 0
Deliberate 70 35 20
Deliberate and concealed 100 50 30

As can be seen from the above table, whether the disclosure of a tax return inaccuracy was ‘prompted’ or ‘unprompted’ can have a significant impact on the level of penalties charged. This issue is, therefore, an important one, which the tribunal may be called upon to decide (for example, see Mikhail v Revenue and Customs [2016] UKFTT 363 (TC)).

Taxpayers may sometimes be probed by HMRC about their actions (or ‘behaviour’) in certain circumstances, with a view to HMRC seeking to determine whether the taxpayer has taken ‘reasonable care’ or has committed a ‘careless’ or ‘deliberate’ tax offence.

There is evidence of HMRC increasingly contending that tax return errors were caused by the taxpayers’ deliberate behaviour, even though their behaviour was arguably only careless at worst (for example, see Scott v Revenue and Customs [2016] UKFTT 599 (TC) and Lyth v Revenue and Customs [2017] UKFTT 549 (TC)). Such HMRC arguments should be strongly resisted in appropriate cases. The generally higher penalties for deliberate behaviour cannot be suspended. Furthermore, various other possible adverse consequences of deliberate behaviour compared with careless behaviour include the potential for HMRC to raise discovery assessments for additional earlier years, the possibility of the taxpayer being placed in HMRC’s ‘managing serious defaulters’ regime, and ‘naming and shaming’ (i.e. the publication of the taxpayer’s details by HMRC (FA 2009, s 94)).

Practical Tip

A deliberate tax offence is a serious matter, which in some cases could lead to prosecution. Taxpayers who have committed a deliberate tax offence, or are accused by HMRC of doing so should, therefore, seek expert professional advice without delay.


This is an excerpt from our business tax report HMRC Penalties, browse our other reports here today 

Tax Insider Reports