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HMRC internal manual

Compliance Handbook

Charging penalties: interaction between penalties: details and examples: FA07/Sch24/Para1 and Para1A inaccuracy penalties exceed 100% of the liability to tax

Where a penalty is charged on more than one person in respect of the same inaccuracy, in the circumstances set out in CH81125, the total amount of the penalty must not normally exceed 100% of the Potential Lost Revenue (PLR).

If the sum of the two penalties does exceed 100%, you must reduce each penalty proportionately, as shown in the example below.

Guidance on making adjustments to penalties in the NPPS is at CH407720.

Where an offshore matter falls into Category 2 or Category 3 and the tax at stake is income tax or capital gains tax, this can be more than 100% of the PLR, see CH116800.


Jack is the personal representative of his late mother’s estate. He is responsible for preparing and submitting an inheritance tax (IHT) account. Jack notices a payment of £100,000 leaving his mother’s bank account in the year before her death. He asks his sister, Amanda, if this was a gift to her from their mother.

Amanda knew that if she admitted this was a gift there would be inheritance tax to pay. As Jack had not received a similar gift, she told him that she had not received any lifetime gifts from their mother. Jack accepts this and completes the IHT account.

Several months later Jack discovers that his mother had gifted the £100,000 to Amanda. He discloses this to HMRC and additional IHT liability is due of £40,000.

You calculate that Jack is liable to a penalty under Paragraph 1, see CH81070, in respect of the inaccurate IHT account. This is 15% of the PLR.

Amanda is liable to a penalty of 100% of the PLR under Paragraph 1A, see CH81075, because she deliberately supplied inaccurate information to Jack knowing that it would lead to him making an inaccurate return and understating the tax due.

The total penalty is therefore 115% (100% plus 15%). As the total amount of the penalties must not exceed 100% of the PLR, each penalty is reduced as follows.

Jack 15/115 x 100 = 13%
Amanda 100/115 x 100 = 87%
Total penalty 100%