Penalties: Incorrect Returns, Accounts etc: Calculation
This guidance applies to returns with a filing date on or before 31 March 2009.
Guidance for returns and other documents with a filing date on or after 1 April 2009, where the return relates to a tax period beginning on or after 1 April 2008, is contained in CH80000+.
The maximum penalty is an amount equal to the ‘difference’ as defined EM4801. The legislation before 27 July 1989 allowed greater maximum penalties but the current legislation should be applied.
In Salmon v General Commissioners for Havering and CIR 45TC77, the Court of Appeal decision makes it clear that where an incorrect return is rendered for a year in respect of which the assessment is undetermined, the effect of what is now TMA70/S95 is to impose a penalty on the difference between the tax and NIC which would have been paid on the incorrect return and the tax and NIC finally determined as correct.
Income Tax and Capital Gains Tax Cases
TMA70/S95(3) defines the ‘relevant years of assessment’ that can be considered in the calculation of the tax difference. These are the year in which the return etc was submitted, the following year and any preceding year. The penalty is related to the offence and not to any particular year of assessment.
Corporation Tax Cases
The position is more straightforward for companies as there are no basis period problems. However, if an account is submitted for one accounting period in support of, say, a loss claim for the previous period, it can be alleged that there has been a separate offence under para 89(1)(a) [previously Section 96(1)(b)] as well as an offence under para 89(1)(b) [previously Section 96(1)(c)] and each offence carries its own ‘difference’. In the vast majority of cases within CTSA however, the penalty will be sought under FA98/SCH18/PARA20 for an incorrect return, rather than para 89.
There is an example of how to calculate the tax difference for a company accounting period affected by a carry back loss claim at EM4816.