New penalty regime is now in operation...

Accross the board for income tax, corporation tax, PAYE, National Insurance and VAT.

This new penalty regime will apply to most taxes, rather than the separate rules that currently apply.

The new penalties will be based on the amount of tax avoided and the reasons for that avoidance. So, there will be lower penalties for 'genuine mistakes' and much higher ones for deliberate actions to conceal income.

Penalty level

The amount of the penalty will depend on three criteria: 

- the amount of tax that would have been lost 

- the nature and behaviour giving rise to the understatement 

- the extent of the disclosure by the taxpayer.

The penalties that can be levied will range from nil to 100% of the tax lost.

The new regime means that there will be lower or no penalties for genuine mistakes that the taxpayer discloses, but potentially higher penalties for deliberate tax evasion.

This should encourage taxpayers who discover errors in their tax affairs to disclose them without fear of excessive penalties.

Suspended penalties

A new concept of suspended penalties is introduced. HMRC can impose a penalty that they will not enforce if no further errors are revealed while the suspension is in force.