Simpler and more consistent behavioural based penalties for errors in tax documents and returns apply to the main taxes (CTSA, ITSA, PAYE, CIS, NIC and VAT) for return periods starting on or after 1 April 2008, that are due to be filed on or after 1 April 2009.
The new penalties were extended to most of HM Revenue & Customs (HMRC) other taxes, levies and duties for return periods starting on or after 1 April 2009, for documents that are due to be filed on or after 1 April 2010. See list of affected taxes.
The new penalty framework aims to support those who seek to comply by taking care to declare and pay the right amount of tax on time, but come down hard on those who seek an unfair advantage from non-compliance.
Penalties will be based on a percentage of the additional tax that is due or was underdeclared. Taxpayer behaviour can affect the penalty, with no penalty charged for mistakes where the taxpayer has taken reasonable care to get the tax right. Significant reductions are available for those who make unprompted disclosures, with smaller reductions for prompted disclosures.
From 1 April 2010 one penalty system was introduced across almost all taxes, duties and levies administered by HMRC for those who fail to register or notify HMRC of a new taxable activity, including late VAT registration.
From 1 April 2010 wrongdoing penalties apply where a person:
Further information on the new penalties, including leaflets, guidance, learning and frequently asked questions can be found at:
Section 97 (Opens new window) and Schedule 24 (Opens new window created an aligned penalty regime for incorrect tax documents and returns for the main taxes:
PAYE, VAT, Income Tax, Capital Gains Tax, the Construction Industry Scheme, Corporation Tax and National Insurance contributions.
These changes were announced in Budget Note 79 (Opens new window).
The following Statutory Instrument brought into force the legislation in Finance Act 2007.
2008 No 568 (Opens new window) The Finance Act 2007, Schedule 24 (Commencement and Transitional Provisions) Order 2008
Section 122 (Opens new window) and Schedule 40 (Opens new window) extended the new penalty framework to most of HMRC's other taxes, levies and duties. This includes Environmental Taxes, Excise Duties, Stamp Duties, accounting for recovery of student loans by employers, Inheritance Tax, Insurance Premium Tax, Pension Schemes and Petroleum Revenue Tax.
Section 123 (Opens new window) and Schedule 41 (Opens new window) extended and adapted the new penalty framework to cover penalties for failure to register or notify HMRC of a new taxable activity across all the taxes, levies and duties administered by HMRC, including late VAT registration. It also included penalties for certain VAT and Excise wrongdoing.
These changes were announced in Budget Note 96 (PDF 66K).
The following statutory instruments brought into force the legislation in Finance Act 2008.
2009 No 571 (Opens new window) The Finance Act 2008, Schedule 40 (Appointed Day, Transitional Provisions and Consequential Amendments) Order 2009.
2009 No 511 (Opens new window) The Finance Act 2008, Schedule 41 (Appointed Day and Transitional Provisions) Order 2009.
2009 No 600 (Opens new window) The Social Security (Contributions) (Amendment No 3) Regulations 2009.
The regulations introduce a new penalty where a person fails to notify liability to pay Class 2 National Insurance contributions to obligations that arise on or after 6 April 2009, where contributions remain unpaid after 31 January following the end of the tax year.
2010 No 530 (Opens new window) The Finance Act 2008 (Penalties for Errors and Failure to Notify etc) (Consequential Amendments) Order 2010.
2010 No 721 (Opens new window) The Social Security (Contributions) (Amendment No 4) Regulations 2010. The regulations bring penalties for errors in returns of Class 1A contributions into the Schedule 24 regime.
Section 109 (Opens new window) and Schedule 57 (Opens new window) make amendments to the provisions in Schedule 24 to FA 2007 (penalties for errors) and Schedule 41 to FA 2008 (penalties for failure to notify and certain other wrongdoing). It also makes certain related changes.
Initial consultation was published on 30 March 2006 as part of the Review’s Developing Programme of Work. A Summary of Responses 1 was published on 7 December 2006.
Further consultation on A new approach to penalties for incorrect tax returns with draft legislation was published on 19 December 2006. A Summary of Responses 2 to that consultation was published on 29 March 2007.
The consultation document Penalties Reform: The Next Stage was published on 10 January 2008 with draft legislation and an impact assessment. This put forward proposals for extending the new penalty framework for penalties for tax errors to most other taxes, duties and levies. It also proposed a new single penalty provision for failure to register a business for VAT or notify HMRC of a new taxable activity to replace the existing provisions. A Summary of Responses 3 and Final Impact Assessment (PDF 112K) were published on 27 March 2008.
