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A guide from HM Revenue & Customs

Penalties for incorrect tax returns and documents have changed so please check your records are accurate and up to date.

How can I avoid a penalty?

If you take reasonable care to get your tax right, HMRC will not charge a penalty, even if you do make a mistake.
Most people take care to fill in their tax returns and documents correctly. HMRC charge penalties to stop people who don’t take care from gaining an unfair advantage and to encourage them to take care in the future.

Some of the ways you can take reasonable care include:

• keeping reliable records to help prepare accurate tax returns
• checking what the correct position is when you don’t understand something

If you discover errors in a document after you have sent it in, please tell us promptly. Otherwise, we may treat any errors you made despite taking reasonable care as careless inaccuracies and charge a penalty.

What if I don’t take reasonable care?

If you don’t take reasonable care, HMRC can charge a penalty for any errors in your return or other tax document.
If they find an error HMRC will write or discuss your tax with you to work out the correct amount. If HMRC think you have not taken reasonable care, they will tell you this and explain why they are charging a penalty before they send you a penalty notice.

HMRC can also charge a penalty on a third party. HMRC can only do this if they deliberately withhold information or deliberately supply false information to a person who has to complete a return.

What can I do to reduce a penalty?

The more serious the reason for the document being incorrect, the higher the penalty can be. HMRC will charge a penalty if the inaccuracy:

• is careless – you failed to take reasonable care
• is deliberate – you knowingly sent us an incorrect document
• is deliberate and concealed – you intentionally sent us an incorrect document and tried to conceal the inaccuracy

You will have to pay the tax and any interest due, as well as the penalty.

HMRC can substantially reduce a penalty, especially if you make an unprompted disclosure. Unprompted means that when you tell us about the inaccuracy you have no reason to believe we have discovered or are about to discover it.

How much HMRC reduce the penalty by depends on how much you:

• tell HMRC about the inaccuracy
• help HMRC work out whether extra tax is due
• allow HMRC to check your figures

If HMRC discover deliberate or deliberate and concealed errors, with extra tax due of more than £25,000, and you do not fully disclose what the true tax position is, they may also publish your name as a tax defaulter - see www.hmrc.gov.uk/about/taxdefaultersqa.htm

Can you suspend my penalty?

If you were careless, HMRC may be able to suspend the penalty for up to a maximum of two years. They will set conditions to help you avoid making the same type of mistake. If you meet all of their conditions HMRC will cancel the penalty. If you don’t, you will have to pay it.

HMRC cannot suspend penalties that arise from deliberate errors.

What if I disagree?

If you don’t agree with HMRC, you can appeal against the penalty and the suspension conditions or have either reviewed – see their factsheet at www.hmrc.gov.uk/factsheets/hmrc1.pdf.

What taxes are affected?

These penalties apply to:

• Capital Gains Tax
• Construction Industry Scheme
• Corporation Tax
• Environmental Taxes
• Excise Duties
• Income Tax
• Inheritance Tax
• Insurance Premium Tax
• National Insurance contributions
• PAYE
• Petroleum Revenue Tax
• Stamp Duties
• VAT

More help

Find out more about these penalties at www.hmrc.gov.uk/about/newpenalties

For information about keeping records go to www.hmrc.gov.uk/recordkeeping/index.htm and www.hmrc.gov.uk/factsheet/recordkeeping.pdf

If you prefer to speak to HMRC please phone the number on the tax return or letter they have sent you, look up HM Revenue & Customs in the Yellow Pages of your local telephone book, or check under ‘Contact us’ at www.hmrc.gov.uk

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