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

Priya submitted a self-assessment return that understated her income tax by £20,000. HMRC found that she deliberately left out the income but did not conceal the omission. Priya had not told HMRC about the error before HMRC began its enquiry (prompted disclosure), but she then cooperated fully. Using the standard penalty table for errors, what is the minimum penalty HMRC can charge?

The minimum penalty is £7,000. Deliberate but not concealed errors have a 35% minimum where disclosure is prompted by HMRC. Applying 35% to the £20,000 of tax understated gives £7,000. The 20% minimum would apply only if disclosure were unprompted.

  1. A£4,000
  2. B£7,000Correct
  3. C£10,000
  4. D£3,000

Explanation

For deliberate but not concealed behaviour, the minimum penalty with prompted disclosure is 35%. 35% x £20,000 = £7,000. £4,000 is the 20% minimum for unprompted disclosure, so it is wrong because Priya's disclosure was prompted. £10,000 is the 50% minimum for deliberate and concealed errors with prompted disclosure.

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