Background information
The new regime of penalties for inaccuracies in documents and returns was introduced in the Finance Act (FA) 2007 (Section 97 and Schedule 24).
The legislation sets out the use of graduated financial penalties based on the behaviour of the taxpayer and the corresponding error resulting in the inaccuracy. These range from no penalty for a mistake made despite taking reasonable care to 100 per cent for deliberate and concealed inaccuracies.
The changes brought about by this legislation apply to inaccuracies in returns or other documents for VAT, Construction Industry Scheme (CIS), Income Tax, Corporation Tax (CT), Capital Gains Tax (CGT) and employers' PAYE (Pay As You Earn) and National Insurance Contributions (NICs).
The Finance Bill 2008 includes a provision to extend the FA 2007 regime for penalties for incorrect returns to other taxes and duties that HMRC administers. This includes all excise duties, environmental taxes, inheritance tax, insurance premium tax, stamp duties and petroleum revenue tax. The first penalties under the extended regime are expected to be charged with effect from 1 April 2010.
Penalties for inaccuracies will be a percentage of the extra tax payable (or not repayable) as a result of correcting the inaccuracy. The percentage is based on a number of things including the behaviour that gave rise to the inaccuracy.
A new concept of suspended penalties is also being introduced.