Penalties for incorrect returns
The amount of penalty is based on the amount of tax understated, but the actual penalty payable is linked to the taxpayer’s behaviour, as follows:
There will be no penalty where a taxpayer simply makes a genuine mistake.
There will be a moderate penalty (up to 30% of the understated tax) where a tax payer fails to take reasonable care.
There will be a higher penalty (up to 70% of the understated tax) if error is deliberate.
There will be an even higher penalty (up to 100% of the understated tax) where the error is deliberate and there is also concealment of the error.
A penalty will be substantially reduced where the taxpayer makes disclosure, especially unprompted disclosure to HMRC.
Late payment for balancing payments
The late payment penalty for balancing payments are 5% for tax unpaid 30 days after payment due date, further 5% if still unpaid after 6 months and a further 5% if still unpaid after 12 months.
Late payment interest
If a tax liability is paid late, in addition to the late payment penalty, interest will be charged.
It will be charged at the rate of interest of 3%p.a.
If the liability is outstanding for less than a full year, then this will be apportioned accordingly.
For example a corporation tax liability of £300,000 was outstanding for 4 months.
How much late payment interest will be payable assuming a rate of 3%?
4/12*3%*£300,000 = £3,000