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HMRC internal manual

Compliance Handbook

HM Revenue & Customs
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How to do a compliance check: penalty for an inaccuracy in response to notices: interaction with Schedule 24 penalties

In some cases, inaccurate information or documents will be given to HMRC in the course of a compliance check into a return or document where an inaccuracy penalty is chargeable under Schedule 24 FA07. In these cases, it may not be necessary to also charge a para 40A penalty for giving us inaccurate information in response to an information notice, even though the two inaccuracies are quite separate.

Giving HMRC inaccurate information during a compliance check will be taken into account in deciding the reduction for disclosure when calculating the Schedule 24 penalty.

Inaccuracy penalties under previous provisions are also applied in a similar way, with abatement or mitigation factors being affected by the giving of inaccurate information.

The penalty in para 40A should normally only be assessed where it is unlikely that the inaccurate information can be adequately penalised through a higher tax-geared penalty.

Example 1

You give a notice to a person asking for information about an avoidance scheme. The information is provided in order to comply with the notice. It later becomes clear that the person has deliberately given you inaccurate information to obstruct your check.

The avoidance is defeated and you are also able to show that the person has made a carelessly inaccurate return. The person has to pay a Schedule 24 penalty. The reduction for disclosure is much less because of the inaccurate information they provided while complying with your information notice.

In this case, a separate penalty under para 40A for the inaccurate response to the notice is unnecessary.

In exceptional circumstances you might need to penalise a person who is also facing an as yet un-quantified Schedule 24 penalty. For example, it might be clear that you need a lot more information and a para 40A penalty would help to secure better compliance for the rest of your check.

Example 2

The circumstances are as in Example 1 above except that you cannot show that the person has to pay a Schedule 24 penalty. The avoidance scheme was entered into on reasonable advice, but the person, fearing the avoidance might fail, decided to obstruct your compliance check by deliberately providing inaccurate information.

The only way to penalise the giving of inaccurate information in response to your notice is to assess a penalty under para 40A.

Example 3

You give a third party information notice to an avoidance promoter. The promoter attempts to obstruct your check by giving you inaccurate information. You cannot assess a Schedule 24 penalty on the promoter, whatever the outcome of your check, but you can assess a para 40A penalty on the promoter for carelessly or deliberately giving you inaccurate information.