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Introduction

Under the penalty legislation introduced by FA 2007, Sch 24, where an inaccuracy has occurred on a return or other document which leads to an understatement of tax, the taxpayer is exposed to a penalty.

The rate of the penalty is based on the behaviour of the person. This rate is then applied to the potential lost revenue (PLR), which is the extra tax due as a result of correcting the inaccuracy or under-assessment, to calculate the amount of the penalty due.

This is discussed in more detail in the Penalties for inaccuracies in returns ― overview, Calculating the penalty for inaccuracies in returns ― behaviour of the taxpayer and Calculating the penalty for inaccuracies ― potential lost revenue guidance notes.

HMRC guidance is at CH82400 onwards.

The rate of penalty can be reduced if the taxpayer comes forward to inform HMRC about the inaccuracy and further by the nature and quality of the information and documentation provided to HMRC. This is known as the quality of disclosure and is discussed in this guidance note.

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