Take care to avoid a penalty

Most people take care to declare and pay the right amount of tax on time. HM Revenue & Customs (HMRC) use penalties to stop people who don't take care from gaining an unfair advantage. After listening to taxpayers, accountants and others, HMRC are changing some penalties to make them simpler and more consistent.

Three new penalties may be applied from 1 April 2010. A penalty may be due if your return or other tax document was inaccurate and tax has been unpaid, understated, over-claimed or under-assessed as a result. You may also face a penalty if you don't tell HMRC that an assessment is too low. You will still have to pay the tax due, and in some cases interest as well.

Your behaviour can affect the penalty and HMRC may reduce the percentage they charge if you:

  • tell HMRC as much as you can about your tax
  • help HMRC work out what tax is due
  • give HMRC access to your records and calculations

Inaccuracy penalty

From 1 April 2009 there is a penalty for inaccurate tax documents and returns. This penalty will be extended to almost all taxes 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.

Under the new system HMRC will not penalise you if you take reasonable care to get your tax right. Taking reasonable care includes:

  • keeping accurate records to make sure your tax returns are correct
  • checking what the correct position is when you don't understand something
  • telling HMRC promptly about any error you discover in a tax return or document after you've sent it

Failure to notify penalty

From 1 April 2010 HMRC can apply a penalty if people don't tell HMRC about a tax obligation at the correct time. See list of affected taxes.

The failure to notify penalty will most commonly apply where you don't tell HMRC at the right time that:

  • you are liable to tax because your new business has made a profit
  • your business's turnover has reached the VAT registration threshold
  • you sell an asset and make a capital gain on which tax should be paid
  • you start a type of business that is required to register with HMRC - for example for excise
  • your circumstances change in another way that affects your tax position

VAT and excise wrongdoing penalties

From 1 April 2010 HMRC will apply wrongdoing penalties where a person:

  • issues an invoice that includes VAT which they are not entitled to charge
  • handles goods on which Excise Duty has not been paid or deferred
  • uses a product in a way that means more Excise Duty should have been paid
  • supplies a product at a lower rate of Excise Duty knowing that it will be used in a way that means a higher rate of Excise Duty should be paid

This penalty applies to anyone registered for VAT or excise, anyone who should be registered to pay VAT or excise duties and to other members of the general public.

Powers to tackle excise fraud are strengthening

New legislation to strengthen excise powers to investigate and tackle fraud takes effect from 1 April 2011. The aim is to protect legitimate businesses and the revenue.

Find out more including questions and answers

Publishing details of tax deliberate defaulters

From 1 April 2010 HMRC can publish the names and details of individuals and companies HMRC penalise for deliberately evading at least £25,000 of their tax obligations - see Publishing details of deliberate tax defaulters Questions and Answers for more details.

Further information for taxpayers

Our factsheets explain how HMRC check your tax. During a check an HMRC officer may give you one or more factsheets to help you understand what is happening and what your rights are. They will also give their contact details so you can ask questions about the check, and any penalties.

Leaflets explaining the penalties and how you can avoid them

Other useful information

Further information for tax agents