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

Mr Shah discovers that his previous year's tax return understated his tax by £20,000 because his adviser was careless. He tells HMRC voluntarily before HMRC has any suspicion and gives full cooperation. Which statement about the penalty range is correct?

For a careless error with unprompted disclosure, the penalty range is 0% to 30% of the tax lost, so a nil penalty is possible with good cooperation. The 15% minimum applies only if disclosure is prompted, and interest on the underpaid tax remains payable.

  1. AThe penalty can be between 0% and 30% of the potential lost revenue, which can be nil, so disclosure supports a nil penalty, with interest still due on the underpaid taxCorrect
  2. BThe penalty must be at least 15% because the error was careless
  3. CThe penalty is between 30% and 100%
  4. DNo interest is due if the disclosure is unprompted

Explanation

For careless errors the maximum penalty is 30% and the minimum for unprompted disclosure is 0%. Therefore a nil penalty is possible with full disclosure. The 15% minimum applies to prompted disclosure. Interest on underpaid tax is charged at 8.50% regardless of the disclosure being unprompted.

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