CH84974 - Penalties for Inaccuracies: Other penalty issues: Interaction with other penalties and surcharges: Penalties not to exceed 100% of the potential lost revenue
You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.
It is possible for a penalty to be imposed on both a person (P) and another person (T) in respect of the same inaccuracy, see CH81075.
In this situation the aggregate amount of the penalties must normally not exceed 100% of the potential lost revenue. The only exception to this rule is in some instances where the inaccuracy involves an offshore matter and the tax at stake is income tax or capital gains tax, see CH82488.
Example of limiting the aggregate penalties to 100% of the PLR
Gervaise is the personal representative of his late mother’s estate and is responsible for preparing and submitting an IHT account. He had noticed a payment of £100,000 leaving his mother’s bank account in the year before her death. He asked his sister, Amanda, if this was a gift to her from their mother.
It was, but Amanda knew that if she admitted the gift there would be Inheritance Tax to pay. So she told Gervaise that she had not received any lifetime gifts from their mother. Gervaise accepts this and completes the IHT account accordingly.
Several months later Gervaise finds that his mother had actually given the £100,000 to Amanda. He discloses this to HMRC. The additional IHT liability is £40,000.
We calculate that Gervaise is liable to a penalty under Paragraph 1, see CH81070, in respect of the inaccurate IHT account of 15% of the potential lost revenue (PLR).
Amanda is liable for a penalty of 100% of PLR under Paragraph 1A, see CH81075, because she deliberately supplied inaccurate information to Gervaise knowing that it would lead to him making an inaccurate return and understating the tax due.
The total amount of the penalties must not exceed 100% of the PLR. Each penalty is reduced rateably as follows.
|Gervaise||15/115 x 100 = 13%|
|Amanda||100/115 x 100 = 87%|
FA07/SCH24/PARA12 (4 & 5)