CH178350 | Sanctionable conduct by tax advisers: penalty for sanctionable conduct: How to calculate the penalty amount: Example

Christian, a tax adviser, knowingly provided an inaccurate return to HMRC on behalf of his client. The return understated the client’s tax liability by £100,000. Christian has engaged in sanctionable conduct. On investigation by HMRC, Christian made a prompted disclosure detailing his role in understating his client’s tax liability. Christian has not previously been issued with a sanctionable conduct penalty. To calculate Christian’s penalty amount:

Step 1

There is PLR attributable to the sanctionable conduct.

Step 2

Since the sanctionable conduct relates to an inaccuracy in a document provided to HMRC, the relevant mechanism for calculating PLR is found in Schedule 24 to the Finance Act 2007. Using that mechanism, the attributable PLR is calculated as £100,000.

Step 3

Christian made a disclosure. The percentage reduction for the quality of the disclosure (a) is calculated as 40%. This is calculated by reference to the extent of Christian’s ‘telling’, ‘helping’, and ‘giving access’ (see CH178280).

Step 4

Christian’s disclosure was prompted.

Step 5

Christian has not previously been issued with any sanctionable conduct penalties.

Step 6

The maximum penalty (b) is therefore 70% (since this is Christian’s first penalty). The minimum penalty (c) is 35% (since Christian made a prompted disclosure).

Step 7

The maximum disclosure reduction (d) is 35%. This is calculated by subtracting (c) from (b): 70-35 = 35.

Step 8

The actual reduction percentage for disclosure (e) is 14%. This is calculated by multiplying (d) by (a): 0.35*0.4 = 0.14.

Step 9

The penalty percentage to be charged (f) is 56%. This is calculated by subtracting (e) from (b): 70-14 = 56.

Step 10

The penalty chargeable (g) is £56,000. This is calculated by multiplying the PLR by (f): 100,000*0.56 = 56,000.

Step 11

The penalty chargeable is below the relevant maximum penalty cap of £1 million and above the minimum penalty amount of £7,500.

Step 12

A special reduction isn’t appropriate in this case. Christian’s penalty is therefore set and issued at £56,000.