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HMRC internal manual

Compliance Operational Guidance

HM Revenue & Customs
, see all updates

Supporting guidance: employer compliance guidance by subject: employment related securities: penalty where a return contains a material inaccuracy - EMI only


If during a compliance check you identify that the return is incorrect you need to establish:

  • why the error occurred
  • what behaviour led to it


A penalty of up to £5,000 may be incurred if a company’s return contains a material inaccuracy which is:

  • careless or
  • deliberate or
  • which has not been corrected by the submission of an amended return without delay after the discovery by the company. See ETASSUM56060.


Factsheet CC/FS32 explains how the penalties are calculated. You must issue it as soon as you have established a material inaccuracy.


An inaccuracy is considered careless where a person fails to take reasonable care and you should consider whether or not what the person did or failed to do is something that a prudent and reasonable person would have done or failed to do in the same circumstances.


An inaccuracy is considered deliberate where a person gives HMRC a document that they know contains an inaccuracy. It is not necessary to demonstrate that the person knew what the accurate figure was, only that they knew that the figure they put on the document was not accurate.

Inaccuracy corrected without unreasonable delay

Where the failure to submit an amended return is remedied without unreasonable delay of discovering the error, the penalty may be reduced by a maximum of 100%.  When considering what amounts to unreasonable delay, each case will be judged on its own merits in view of the facts and the company’s circumstances.

How to calculate the penalty

Once you have established the facts you should send a referral to ESSU by sending an email to Shareschemes, SPT (Specialist PT ESSU).  Include in your email details of the inaccuracy found, the behaviours established and your penalty recommendations.

ESSU will:

  • consider the information provided
  • authorise the penalty
  • refer the papers back to you.


A careless or deliberate penalty is calculated following the general principles of Schedule 24 penalties.

A lower penalty will be charged where the inaccuracy is considered to be careless as opposed to deliberate.

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


Behaviour Penalty range for prompted disclosure
Careless 0% - 30%
Deliberate 35% - 100%


Disclosure reduction

The more a person tells, helps and gives access to us, the more the penalty will be reduced for disclosure. This is the quality of disclosure.

To calculate the reduction for disclosure you need to consider the three elements of disclosure,

  • telling us about it, see CH82440
  • giving us reasonable help, see CH82450
  • allowing us access to records, see CH82460.


As a guide you may weight the elements of disclosure as follows.

Element of disclosure Percentage
Telling 30%
Helping 40%
Giving access 30%
Total 100%


Penalty calculation

Step 1

Calculate the percentage for the quality of the disclosure (a).

Step 2

Having established the behaviour, identify from the table above

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


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

Penalty chargeable  = £5,000 x (f)