MLR1PP9150 - Penalties Guidance: The maximum penalty or penalty cap: Introduction

Because the level of any penalty must be appropriate, consideration must be given to both the nature and relative size of the business to ensure that any penalty is not too high. Some businesses because of either the way they are organised, or the type of business they conduct, may have a culpable turnover or a scale charge that could be disproportionately high compared with their gross profit.

Some businesses may also have a lot of clients who pay a relatively small fee or commission for the business's services. Under these circumstances any additional penalty calculated on the basis of the culpable turnover or the scale charge could also be disproportionately high compared to the relative size of the business.

Because we must ensure penalties are dissuasive but fair, the total starting penalty will be limited to a maximum or capped starting penalty.

The penalty cap is currently set at 10% of a business’s gross profit in a preceding 12 month period, which will normally be the accounting period. It is important to note that this is normally the total gross profit from all business activity; including non regulated activities.