Introduction Background Note
86.HMRC may charge penalties in cases where income, gains etc are not declared or notified to HMRC either deliberately or through a failure to take reasonable care. Schedule 24 to FA 2007 (errors in tax returns etc), Schedule 41 to FA 2008 (failure to notify liability) and Schedule 55 to FA 2009 (returns not filed on time) set out the minimum and maximum penalties that may be charged.
87.In each case the penalty is a percentage of the amount of tax that has been lost. For example, where income in omitted from a return, then in addition to recovering the tax and interest thereon, a penalty may be charged in the range 0 per cent to 30 per cent where the error is due to a failure to take reasonable care, 20 per cent to 70 per cent where the understatement is deliberate and 30 per cent to 100 per cent where a deliberate understatement is aggravated by concealment.
88.The percentage ranges set out above will continue to apply where the tax involved is not income tax or CGT. They will also continue to apply where the non-compliance either relates to a domestic matter (UK income, gains etc), or to non-compliance involving an overseas jurisdiction with automatic exchange of information with the UK (a “category 1 territory”).
89.Where the non-compliance involves either a jurisdiction that only exchanges information with the UK on request or has no arrangements to exchange information with the UK, then the percentages will be increased by a factor of either 1.5 or 2 depending on whether a category 2 or 3 territory is involved. Jurisdictions will be classified by Treasury order into category 2 or 3 taking account of the existence and quality of arrangements to exchange information and whether the UK would benefit from arrangements in cases where none exist.
90.This means, for example, that in a case involving income tax or CGT, a penalty of 200 per cent of the tax lost could be charged for a serious case of failing to declare income or assets in a jurisdiction without information exchange arrangements. The higher penalties reflect the fact HMRC is less likely to detect the non-compliance and that the choice of jurisdiction may well have been influenced by that factor.