Paragraph 1A of Schedule 24 to the Finance Act 2007 lets HMRC charge a penalty on someone who deliberately feeds false information to a taxpayer, or deliberately withholds information, intending the taxpayer’s return to be wrong. The penalty is up to 100% of the tax understated, it can be charged whether or not the taxpayer is also penalised, and HMRC must show the third party knew what the result would be.

What does paragraph 1A actually say?

A penalty is payable by a person, called T in the legislation, where all three of these conditions are met:

  1. another person (P) gives HMRC a document of a kind listed in the table in paragraph 1 of Schedule 24, such as a tax return or an inheritance tax account;
  2. the document contains a relevant inaccuracy, meaning one that amounts to or leads to an understatement of tax, a false or inflated statement of a loss, or a false or inflated claim to repayment of tax; and
  3. the inaccuracy was attributable to T deliberately supplying false information to P, directly or indirectly, or deliberately withholding information from P, with the intention of the document containing the inaccuracy.

Paragraph 1A(3) says the penalty is payable whether or not P is liable to a penalty for the same inaccuracy. The paragraph was inserted by Schedule 40 to the Finance Act 2008 with effect from 1 April 2009.

This is a different rule from the one that makes a taxpayer answer for an agent’s careless mistakes. If you want that side of the picture, see whether HMRC can penalise an agent for a client’s errors.

What must HMRC prove about the third party?

The Compliance Handbook sets a high bar. CH81167 says HMRC must be able to demonstrate that T:

  • knew the information was likely to be used by P to complete one or more returns or documents;
  • knew that giving false information, or withholding it, would make the return inaccurate; and
  • then gave the false information, or withheld it, with the result that a particular return understated the tax or overstated a loss or repayment.

CH81166 explains the key words. “Information” means facts or explanations of facts. “False” information is more than information that turns out to be wrong: it is information intended to deceive, incorrect or incomplete but represented as the truth. The fact that T gave P information is not in itself evidence that the inaccuracy is attributable to T, and if T supplied full and accurate information, the inaccuracy cannot be attributable to T at all.

Two further points from CH81167 often surprise people. HMRC does not need to show a motive, although evidence that T benefited financially adds weight to the case that T acted deliberately. And it is not a defence for T to argue that P would have spotted the false information with more investigation.

Who can be caught as a third party?

Anyone whose information a taxpayer has to rely on. HMRC’s examples at CH81168 show the range:

  • Trustees. A daughter completing an inheritance tax account asks the trustees of a settlement in which her late father had an interest for details of the trust assets. They deliberately leave out a bank account holding £50,000, knowing the account will understate the tax. The trustees are liable to the penalty.
  • Business partners. A glazing company sells insurance on behalf of an insurer and reports a lower premium than it actually charges customers. The insurer’s Insurance Premium Tax return relies on those reports and understates the tax. The glazing company is liable.

Professional advisers are rarely in this position. CH84545 says it is extremely unlikely that a tax adviser would be liable, because an adviser normally receives information from the client and advises on it rather than supplying information to the client. HMRC officers are told to examine the facts very carefully before pursuing an adviser under paragraph 1A, and to use the separate dishonest agent rules where they suspect dishonesty.

Is the taxpayer who filed the return penalised too?

Possibly. CH81166 says every person is responsible for the accuracy of what they send HMRC and must take reasonable care, within their ability and circumstances, that information from others is correct and complete. If P failed to do that, P can be charged an inaccuracy penalty under paragraph 1 as well.

In the trustee example, the daughter took reasonable care because she had no way to check the trust records independently, so only the trustees were penalised. In the glazing example, the insurer still has to pay the tax it under declared, but escapes a penalty if it can show it took reasonable care to check the reports. Our page on relying on others and reasonable care covers what that involves.

How much is the penalty?

Paragraph 4B sets the penalty under paragraph 1A at 100% of the potential lost revenue, which is broadly the extra tax due once the inaccuracy is corrected. It can be reduced for disclosure. Paragraph 9 treats a disclosure of the supply of false information or the withholding of information in the same way as any other disclosure: telling HMRC, helping it quantify the inaccuracy and giving access to records. Under the table in paragraph 10, a 100% penalty cannot be reduced below:

Type of disclosure Minimum penalty
Unprompted 30%
Prompted 50%

HMRC can also reduce the penalty for special circumstances under paragraph 11, though ability to pay does not count. Suspension is not available: paragraph 14 allows HMRC to suspend only a penalty for a careless inaccuracy under paragraph 1.

Where both P and T are penalised for the same inaccuracy, paragraph 12(4) and (5) cap the combined total at 100% of the potential lost revenue for a category 1 inaccuracy, 150% for category 2 and 200% for category 3. CH84974 confirms that the combined cap is normally 100%, with higher limits only in some offshore cases involving income tax or capital gains tax.

What are the time limits and how can the penalty be challenged?

  • Assessment. Under paragraph 13(3), HMRC must assess a paragraph 1A penalty within 12 months of the end of the appeal period for the decision correcting the inaccuracy or, where there is no such assessment, the date the inaccuracy is corrected.
  • Payment. Paragraph 13(1A) requires payment within 30 days of the penalty notice being issued.
  • Appeal. Paragraph 15 lets the person appeal against HMRC’s decision that a penalty is payable and against its amount. The appeal follows the normal route for the tax concerned, including a statutory review or a notice of appeal to the tax tribunal, and paragraph 16(2) means the penalty need not be paid before the appeal is decided.
  • Human rights safeguards. CH81165 tells officers to apply the Human Rights Act procedures at CH300000 onwards, because this is a penalty treated as criminal for Article 6 purposes.
  • Double jeopardy. Under paragraph 21, a person convicted of an offence for the same inaccuracy is not also liable to the civil penalty.

How might it work in practice?

Illustration only. A landlord’s letting agent prepares an annual statement of rents collected, which the landlord’s accountant uses for the return. The agent deliberately leaves off rent from one flat it was pocketing, knowing the statement goes straight into the tax return. The return understates tax by £4,000.

  • The landlord pays the £4,000. If they had no reasonable way to spot the gap, they may escape a penalty.
  • The agent faces a paragraph 1A penalty of up to £4,000, reduced to no less than £2,000 if the disclosure is prompted.
  • If the landlord is also penalised for not checking bank receipts, the total of both penalties cannot exceed £4,000.

What mistakes do people make?

  • Assuming a third party penalty lets the taxpayer off. The taxpayer still pays the tax and may still face a careless penalty.
  • Treating any wrong figure from a supplier or agent as grounds for a paragraph 1A penalty. HMRC must show deliberate conduct and knowledge of the consequences.
  • Arguing that the taxpayer should have checked. CH81167 says that is no defence for T.
  • Expecting the penalty to be suspended. Only careless paragraph 1 penalties can be.
  • Missing the appeal deadline in the penalty notice.

For the penalty rates that apply to the taxpayer’s own errors, see HMRC penalties for tax return errors and the HMRC penalties table.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.