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HMRC internal manual

MLR1 Penalties Guidance

HM Revenue & Customs
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Penalties guidance: the penalty cap: introduction

Because the level of any penalty must be appropriate, consideration must be given to both the nature and relative size of the business to ensure that any penalty is not too high. Some businesses because of either the way they are organised, or the type of business they conduct, may have a culpable turnover or a scale charge that could be disproportionately high compared with their gross profit.

Some businesses may also have a lot of clients who pay a relatively small fee or commission for the business’s services. Under these circumstances any additional penalty calculated on the basis of the culpable turnover or the scale charge could also be disproportionately high compared to the relative size of the business.

Because we must ensure penalties are dissuasive but fair, the total starting penalty will be limited to a capped penalty.

The penalty cap is currently set at 10% of a business’s gross profit in a preceding 12 month period, which will normally be the accounting period. It is important to note that this is normally the total gross profit from all business activity; including non regulated activities.

For MSBs/HVDs - applying the penalty cap will not bring the penalty down below the fixed starting penalty of £5000. So the penalty cap for HVDs/MSBs is the greater of either:

  • 10% of the gross profit or
  • the fixed starting sum of £5000

For ASPs/TCSPs/EABs - the penalty cap is 10% of the gross profit. This is not subject to a minimum sum of the fixed starting penalty of £5000.

Remember that the risk of money laundering with ASPs/TCSPs/EABs is in relation to the activities carried out by the client, not the TCSP/ASP/EAB themselves. The size of additional penalty is linked to the number of clients subject to the breaches, and not their culpable turnover so we need to make sure any penalty is still proportionate and dissuasive. If we set the penalty cap too high, by imposing the minimum cap of the fixed starting penalty of £5000, we may end up with a disproportionately high penalty figure.