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ACCA Strategic Professional · Advanced Taxation (UK) · Appropriateness of planning measures to a taxpayer's circumstances and objectives

Hanif Ltd's tax return for the year contained an error that understated corporation tax by £40,000. HMRC concluded that the error arose because Hanif Ltd failed to take reasonable care, but there was no intention to understate the tax. Using the standard penalty table for errors, what is the maximum penalty that HMRC can charge?

The maximum penalty is £12,000. An error caused by a failure to take reasonable care is classed as careless, and the maximum standard penalty for careless behaviour is 30% of the tax understated. 30% of £40,000 gives £12,000.

  1. A£12,000Correct
  2. B£28,000
  3. C£40,000
  4. D£6,000

Explanation

Careless behaviour carries a maximum penalty of 30% of the potential lost revenue. 30% x £40,000 = £12,000. £28,000 is 70%, which applies to deliberate but not concealed errors. £40,000 is 100%, the maximum for deliberate and concealed errors.

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