CH401274 - Charging penalties: charging penalties: introduction: offshore asset based penalties: calculating the penalty

To calculate the penalty you need to follow the steps below.

1. Working out the amount of the asset based penalty

The standard amount (amount A) of the asset based penalty is the lower of

  • 10% of the value of the asset, or
  • 10 x the offshore Potential Lost Revenue (PLR)

If the potential penalty relates to both offshore and domestic matters this is called a ‘combined penalty’. See CH122170 for details on how to work out the amount for ‘combined penalties’.

2. Working out the quality of disclosure reduction

To work out the quality of disclosure (amount B) you should consider the guidance at CH401272.

3. Prompted or unprompted disclosure

Having established the behaviour and whether the disclosure was unprompted or prompted, from the table below find the

  • maximum penalty (C)

  • minimum penalty (D).

Disclosure Range Minimum Range Maximum
Unprompted 50% of the standard amount 100% of the standard amount
Prompted 80% of the standard amount 100% of the standard amount

Then calculate the maximum disclosure reduction (E).

(E) = (C) - (D)

4. Working out the reduction percentage for disclosure

Calculate the actual reduction percentage for disclosure (F) by multiplying the maximum disclosure reduction (E) by the percentage for the quality of the disclosure (B).

Actual reduction percentage for disclosure (F) = (E) x (B)

5. Working out penalty percentage

Calculate the penalty percentage to be charged (amount (G)) by deducting the actual reduction percentage for disclosure (F) from the penalty maximum (C).

Penalty chargeable (G) = (A) x (F)

Example - a prompted disclosure

The penalty range for a prompted disclosure is 80% to 100% of the standard amount. In this case the asset is valued at £150,000 and the offshore PLR is £1,000.

The standard amount is the lower of 10% of the value of the asset (£15,000) or 10 x the offshore PLR (£10,000). The standard amount is therefore £10,000.

The reduction for quality of disclosure was 30%.

1. The standard amount is £10,000 (A).

2. The reduction percentage for the quality of the disclosure (B) has been calculated as 30%.

3. The maximum penalty (C) is 100% and the minimum penalty (D) is 80%.

So the maximum disclosure reduction (E) is 100 – 80 = 20%

4. The actual reduction percentage for disclosure (F) is 20 x 30% = 6%

5. Penalty percentage to be charged (G) is 100% – 6% = 94%

The penalty to be charged is £10,000 x 94% = £9,400.

6. Considering other reductions

After working out the amount of the penalty, you then take into account any special circumstances that the customer has told you about. These will be uncommon or exceptional circumstances that you have not already considered when working out the quality of disclosure, see CH122650. This will then give you the amount of penalty to charge.