“New” regime – from 2008/09 onwards
The “new” regime for penalties from the 2008/09 tax year does not repeal the “old” regime. If there are underpayments for a period spanning 2008, separate penalties will be calculated for each part of the period.
The current regime starts by specifying a maximum penalty according to the “behaviour” leading to the understatement of tax (ranging from failing to take reasonable care through to deliberately understating tax and taking steps to hide the understatement from HMRC). It also provides for a possible reduction according to whether the disclosure of the understatement was voluntary or was prompted by actual or imminent HMRC intervention.
|
Starting-point penalty |
Reduction in penalty
potentially available |
| Enquiry initiated by HMRC |
Voluntary unprompted disclosure |
| Negligence (failure to take “reasonable care”) |
30% |
15% |
30% |
| Deliberate understatement |
70% |
35% |
50% |
| Concealed deliberate understatement |
100% |
50% |
70% |
If offshore tax havens are concerned, penalties can be higher still (up to a maximum of 200%).
The amount of the potential reduction achieved in a particular case depends on the extent to which you are considered to have assisted in regularising the position:
- up to 40% of the maximum potential reduction is available for promptly admitting, disclosing and explaining the irregularity
- up to 30% is available for assisting in quantifying it
- up to 30% for giving access to records and documents reasonably requested by HMRC to check the position.
When we act on behalf of those under investigation, we aim to secure the full reduction wherever possible.
Under the newer regime, HMRC can often be persuaded to suspend a penalty for negligence (but not for deliberate understatement) for up to two years if certain undertakings appropriate to the case are given. The penalty can fall away if there are no further tax errors in the suspension period. Where a penalty has to be conceded, we will always seek to negotiate suspension if at all possible.
In all cases (under both the old and new regimes), any penalty which HMRC seeks to impose is subject to the normal appeal process.
