CH178340 | Sanctionable conduct by tax advisers: penalty for sanctionable conduct: How to calculate the penalty amount

Once we have determined the potential lost revenue (PLR) attributable to the tax adviser’s sanctionable conduct, and any reduction for disclosure, we are ready to determine the final penalty amount. The process for doing so is summarised in the following steps:

Step 1

Determine whether there is PLR attributable to the sanctionable conduct. (If not, the penalty amount will be £7,500.) See CH178220.

Step 2

Calculate the amount of the PLR by reference to the relevant mechanism in the taxpayer penalties legislation. See CH178220.

Step 3

If there has been a disclosure, calculate the percentage reduction for the quality of the disclosure (a). See CH178260+.

Step 4

If there has been a disclosure, consider whether the disclosure was prompted or unprompted. See CH178270.

Step 5

Determine whether there have been other sanctionable conduct penalties issued to the tax adviser within the previous 20 years and, if so, when and how many. See CH178240.

Step 6

Identify the

• maximum penalty (b), and

• minimum penalty (c)

Where the tax adviser has not previously been issued with a sanctionable conduct penalty in the last 20 years, or more than four years have elapsed since their last penalty, the minimum penalty percentages for sanctionable conduct are:

• 70% of the PLR for no disclosure

• 35% of the PLR for prompted disclosure

• 20% of the PLR for unprompted disclosure

Where the tax adviser has previously been issued with between two and five penalties within the last 20 years, and no more than four years have elapsed between them, the minimum penalty percentages are:

• 85% of the PLR for no disclosure

• 35% of the PLR for prompted disclosure

• 20% of the PLR for unprompted disclosure

Where the tax adviser has previously been issued with more than six penalties within the last 20 years, and no more than four years have elapsed between them, the minimum penalty percentages are:

• 100% of the PLR for no disclosure

• 35% of the PLR for prompted disclosure

• 20% of the PLR for unprompted disclosure

Step 7

Calculate the maximum disclosure reduction (d)

Maximum disclosure reduction (d) = (b) - (c)

Step 8

Calculate the actual reduction percentage for disclosure (e) by multiplying the maximum disclosure reduction (d) by the percentage for the quality of the disclosure (a).

Actual reduction percentage for disclosure (e) = (d) x (a)

Step 9

Calculate the penalty percentage (f) by deducting the actual reduction percentage for disclosure (e) from the penalty maximum (b).

Penalty percentage to be charged (f) = (b) - (e)

Step 10

To arrive at the amount of the penalty to be charged (g) apply the penalty percentage (f) to the potential lost revenue (PLR) calculated at Step 2.

Penalty chargeable (g) = PLR x (f)

Step 11

If the penalty chargeable (g) is above the relevant maximum penalty amount, reduce the penalty to that amount.

The relevant maximum penalty amount is as follows:

• £1 million, where the tax adviser has not previously been issued with a sanctionable conduct penalty in the last 20 years, or more than four years have elapsed since their last penalty.

• £5 million, where the tax adviser has previously been issued with between two and five penalties within the last 20 years, and no more than four years have elapsed between them.

• No maximum amount, where the tax adviser has previously been issued with more than six penalties within the last 20 years, and no more than four years have elapsed between them.

If the penalty chargeable (g) is below the minimum penalty amount (£7,500), increase the penalty to the minimum penalty amount.

Step 12

Consider whether special reduction is appropriate.

Unless there is a special reduction, see CH178330, the minimum penalty for sanctionable conduct is £7,500, even if the tax adviser makes a disclosure.

FA12/SCH38 as amended