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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Calculating the penalty: general approach

Before calculating a penalty you must have

  • identified the nature of the offence
  • identify the relevant penalty section (IHTM36102) that applies
  • work out the culpable tax (IHTM36176) on which the penalty is due, and
  • establish the maximum penalties due

(If there was reasonable excuse for the failure or the error or omission was innocent (IHTM36311) then no offence has been committed and no penalty is due, unless a IHTA84/S248 penalty is being considered.)

Once you have established the maximum penalty that is due, which is 100% of the culpable tax lost for accounts, documents or information delivered after 22 July 2004 (or, for accounts, documents or information delivered between 22 July 1999 and 22 July 2004 the fixed sum of £1,500 for negligence or £3,000 for fraud plus 100% of the culpable tax lost), you then abate (IHTM36177) it to take account of

  • the extent to which the taxpayer disclosed (IHTM36181) the irregularities
  • the extent to which the taxpayer co-operated (IHTM36191) with our enquiries, and
  • the gravity (IHTM36201) of the offences.

The net percentage should then be applied to the maximum penalty to arrive at the ‘expected offer’, the amount of penalty you are seeking and which you believe is acceptable to settle the matter.

The penalty should be calculated using the penalty calculation form (IHTM36211) or set out in full in a memo. All calculations, including those resulting in a nil penalty, must be referred to your SO manager or the Penalty Portfolio Holder for approval (IHTM36223) before the taxpayer is advised of the amount.

There will be some occasions when the normal penalty loadings will be impracticable (IHTM36210).