Guidance

Employee Tax Advantaged Share Schemes — Penalty for Material Inaccuracy — CC/FS32

Updated 29 March 2022

This factsheet contains information about penalties we may charge if your annual return contains a material inaccuracy.

This factsheet is one of a series. For the full list of the factsheets in our compliance checks series, go to www.gov.uk and search for ‘Compliance checks factsheets’.

If you need help

If you have any health or personal circumstances that may make it difficult for you to deal with this check, please tell the officer that’s contacted you. We’ll help you in whatever way we can. For more details, go to www.gov.uk/get-help-hmrc-extra-support

When we may charge you a penalty for material inaccuracies

We may charge you a penalty of up to £5,000 if as a result of a compliance check we decide that the return contains material inaccuracy and:

• you have not sent an amended return
• the inaccuracy was careless, or deliberate (we refer to these as ‘behaviours’ which are explained later in this factsheet)

A company must submit an amended return if:

• it becomes aware that information was omitted from the return submitted
• it becomes aware that the return submitted includes something that should not have been included
• it identifies any other error or inaccuracy in the return

Once the company has identified an inaccuracy, it must submit the amended return without delay.

What you can do to reduce any penalty we may charge

We can reduce the amount of any penalty we charge you depending on our view of how much assistance you gave us when you make a disclosure. We refer to this assistance as the ‘quality of disclosure’ or as ‘telling, helping and giving’.

Examples of making a disclosure include:

• telling us about, or agreeing that there is something wrong and how and why it happened
• telling us everything you can about the extent of what is wrong as soon as you know about it
• telling and helping us by answering our questions in full
• helping us by replying to our letters quickly
• helping us by agreeing to attend any meetings, or visits at a mutually convenient time
• helping us by checking your own records to identify the extent of the inaccuracy
• giving us access to documents we’ve asked for without unnecessary delay
• giving us access to documents we may not know about, as well as those that we ask to see

We’ll reduce the penalty by the maximum amount possible if you:

• tell us everything you can about any inaccuracy as soon as you know about it
• do everything you can to help us correct it

If you delay in making a disclosure, you may still be entitled to a reduction but it will be smaller.

If we do not need any extra assistance from you we’ll give you the full reduction that the law allows for telling, helping and giving.

How we work out the amount of a penalty

There are 5 stages in working out the amount of any penalty. Each stage is explained in more detail below.

1. Determining our view of the ‘behaviour’

When there is an inaccuracy, we’ll work with you to find out what caused it. We refer to this as the ‘behaviour’. The type of behaviour will affect whether we charge a penalty and the amount of the penalty. There are 2 types of behaviour.

Careless

This is where you failed to take reasonable care to get things right.

Deliberate

This is where you knew that a return or document was inaccurate when you sent it to us.

2. Deciding the range that the penalty falls within

The penalty percentage falls into 1 of 2 ranges. The range it falls into depends on the type of behaviour. The following table shows the 2 penalty ranges.

Type of behaviour	Penalty range
Careless	0% to 30%
Deliberate	35% to 100%

3. Working out the reductions for the quality of disclosure (also referred to as ‘telling, helping and giving’)

The quality of disclosure (telling, helping and giving), determines where the penalty will fall within the penalty range. The reduction we give depends on how much assistance you give us. For:

• telling we give up to 30%
• helping we give up to 40%
• giving access to records we give up to 30%

4. Working out the penalty percentage rate

The penalty percentage rate is determined by the penalty range and the reduction for the quality of disclosure.

Example

We found a careless inaccuracy that the customer had not told us about before we started our check. When we told them about the inaccuracy, they agreed with us.

The penalty range for a careless inaccuracy with a prompted disclosure is 0% to 30% of the maximum amount chargeable £5,000.

The reduction for quality of disclosure (telling, helping and giving) was 70%.

Steps	Calculation
To work out the penalty percentage rate, we first work out the difference between the minimum and maximum penalty percentages.	30% minus 0% = 30%
We then take off the percentage reduction from the maximum penalty percentage we can charge.	30% x 70% = 21%
This gives us the penalty percentage rate.	30% minus 21% = 9%

5. Working out the amount of the penalty

To work out the amount of the penalty, we multiply the maximum amount chargeable by the penalty percentage rate. For example, the penalty would be £450 (£5,000 x 9% = £450).

How we tell you about a penalty

We’ll write to tell you how much the penalty is and how we’ve worked it out. If there is anything about the penalty that you do not agree with, or if you think there is any information we haven’t already taken into account, you should tell us straightaway.

What happens if you’ve deliberately done something wrong

We may carry out a criminal investigation with a view to prosecution, if you’ve deliberately done something wrong, such as:

• give us information that you know is not true, whether verbally or in a document
• dishonestly misrepresent your liability to tax or claim payments to which you’re not entitled

Managing Serious Defaulters

If you’ve deliberately got your tax affairs wrong, we may need to monitor your tax affairs more closely. We have an enhanced monitoring programme called Managing Serious Defaulters. You can find more information about this in factsheet CC/FS14, ‘Managing Serious Defaulters’. Go to www.gov.uk and search for ‘CC/FS14’.

What to do if you disagree

If there’s something that you do not agree with, you should tell us.

If we make a decision that you can appeal against we’ll write to you to explain the decision and tell you what to do if you disagree. You’ll usually have 3 options. Within 30 days you can:

• send new information to the officer you’ve been dealing with and ask them to take it into account
• have your case reviewed by an HMRC Revenue and Customs (HMRC) officer who hasn’t been involved in the matter
• arrange for your appeal to be heard by an independent tribunal, who will decide the matter

Whichever you choose, you may also be able to ask for an HMRC specialist officer to act as a neutral facilitator to help resolve the dispute. This process is known as ‘Alternative Dispute Resolution’ (ADR).

ADR is only available for disputes relating to some of the taxes and other areas that we administer. The officer dealing with your check will tell you if ADR is available for the matter that you are disputing.

Go to www.gov.uk and search for ‘HMRC1’ and ‘CC/FS21’ to find more information about:

• appeals and reviews in factsheet HMRC1, ‘HM Revenue and Customs decisions — what to do if you disagree’
• ADR in factsheet CC/FS21, ‘Alternative Dispute Resolution’

Your rights when we’re considering penalties

The European Convention on Human Rights gives you certain important rights. If we’re considering penalties, we’ll tell you. We’ll also tell you that these rights apply and ask you to confirm that you understand them. These rights are that:

• if we ask you any questions to help us decide whether to charge you a penalty, you have the right not to answer them — the amount of help that you give us when we’re considering penalties is entirely a matter for you to decide
• when deciding whether to answer our questions, you may want to get advice from a professional adviser — particularly if you do not already have one
• if you disagree with us about the tax or any penalties we believe are due, you can appeal — if you appeal about both tax and penalties, you have the right to ask for both appeals to be considered together
• you have the right to apply for funded legal assistance for dealing with any appeal against certain penalties
• you’re entitled to have the matter of penalties dealt with without unreasonable delay

You can find full details about these rights in factsheet CC/FS9 ‘The Human Rights Act and penalties’. Go to www.gov.uk and search for ‘CC/FS9’.

Our privacy notice

Our privacy notice sets out the standards that you can expect from us when we ask for information or hold information about you. Go to www.gov.uk and search for ‘HMRC Privacy Notice’.