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HMRC internal manual

Compliance Handbook

From
HM Revenue & Customs
Updated
, see all updates

Penalties for Inaccuracies: Calculating the Penalty: Calculation Process: How to calculate the amount of penalty to be charged

You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.

Penalty calculation
Penalty ranges
Examples of penalty calculations

Penalty calculation

Step 1

Calculate the percentage for the quality of the disclosure (a), following the guidance at CH82430.

Step 2

Having established the behaviour and whether the disclosure was unprompted or prompted, identify from the table at CH82470

  • the maximum penalty (b)
  • the minimum penalty (c).

You will find these

  • in the table at CH82470 for most inaccuracies, or
  • at CH82480+ where the inaccuracy involves an offshore matter and the tax at stake is income tax or capital gains tax.

Then calculate the maximum disclosure reduction (d).

(d) = (b) - (c )

Step 3

Calculate the actual reduction percentage for disclosure (e) by multiplying the maximum disclosure reduction (d) by the percentage for the quality of the disclosure (a).

Actual reduction percentage for disclosure (e) = (d) x (a)

Step 4

Calculate the penalty percentage (f) by deducting the actual reduction percentage for disclosure (e) from the penalty maximum (b).

Penalty percentage to be charged (f) = (b) - (e)

Step 5

To arrive at the amount of the penalty to be charged (g) apply the penalty percentage (f) to the potential lost revenue (PLR) calculated in line with CH82150 onwards.

Penalty chargeable (g) = PLR x (f)

Penalty ranges

Penalties fall into certain ranges. The disclosure reduction will determine where they fall within that range.

The penalty ranges will be different where the inaccuracy involves an offshore matter and the tax at stake is income tax or capital gains tax, see CH82480+.

The penalty ranges for each of the three categories are set out below.

Category 1 - inaccuracies that do not involve an offshore matter or inaccuracies that involve an offshore matter in territory 1 where the tax at stake is income tax or capital gains tax, see CH82484.

Behaviour Penalty range for unprompted disclosure Penalty range for prompted disclosure
     
Careless 0% - 30% 15% - 30%
Deliberate but not concealed 20% - 70% 35% - 70%
Deliberate and concealed 30% - 100% 50% - 100%

Category 2 - inaccuracies that involve an offshore matter in territory 2 where the tax at stake is income tax or capital gains tax, see CH82484.

Behaviour Penalty range for unprompted disclosure Penalty range for prompted disclosure
     
Careless 0% - 45% 22.5% - 45%
Deliberate but not concealed 30% - 105% 52.5% - 105%
Deliberate and concealed 45% - 150% 75% -150%

Category 3 - inaccuracies that involve an offshore matter in territory 3 where the tax at stake is income tax or capital gains tax, see CH82484.

Behaviour Penalty range for unprompted disclosure Penalty range for prompted disclosure
     
Careless 0% -60% 30% - 60%
Deliberate but not concealed 40% - 140% 70% - 140%
Deliberate and concealed 60% -200% 100% -200%

Examples of penalty calculations

Examples of penalty calculations are at

  • CH82511 for unprompted disclosure
  • CH82512 for prompted disclosure.