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HMRC internal manual

International Manual

How the corporate tax regime works for Controlled Foreign Companies: HMRC enquiries: penalties

For a return or other document which is due to be filed on or after 1 April 2009, relating to a tax period beginning on or after 1 April 2008, FA07/SCH24/PARA1 ( penalties for errors) will apply to the controlled foreign company supplementary page as it applies to the rest of the return. This renders companies liable to a penalty where they deliver an incorrect return or, on discovering that a return is incorrect, do not remedy the error without reasonable delay. (Returns due to be filed before 1 April 2009 were governed by the previous penalty regime under FA98/SCH18/PARA20.)

The maximum penalty is calculated by applying an appropriate percentage to the potential lost revenue as a result of putting right an inaccuracy. Full details of these penalties are found in the Compliance Handbook.

For accounting periods ending on or before 30 June 1999 only, ICTA88/S754A(9) imposes a penalty under FA07/SCH24/PARA1 where it becomes established that an acceptable distribution policy was not pursued in a case where a return was made on the basis that such a policy would be pursued (ICTA88/S754A(4)) and the return was not amended within the time allowed (see INTM256650).

The imposition of penalties is subject to the oversight of CSTD Business, Assets & International Base Protection Policy team. Before a penalty is imposed under FA07/SCH24/PARA1 in respect of a controlled foreign company return the following will be taken fully into account:

  • the information that should reasonably have been available to the company making the return,
  • the understanding of the legislation that might reasonably be expected and
  • the company’s justification for taking an alternative interpretation of facts or legislation.