HMRC penalties for errors in a tax return are a percentage of the extra tax due, and the percentage depends on two things: your behaviour, and whether you told HMRC before it found the error. Take reasonable care and there is no penalty at all. A careless error runs from 0% to 30% of the tax. A deliberate error runs from 20% to 70%, and deliberate plus concealed from 30% to 100%. Within each band, coming forward unprompted puts you at the bottom; waiting to be caught puts the floor much higher.
The penalty bands
From HMRC factsheet CC/FS7a, the ranges as a percentage of the potential lost revenue are: reasonable care, no penalty; careless, 0% to 30% unprompted or 15% to 30% prompted; deliberate, 20% to 70% unprompted or 35% to 70% prompted; deliberate and concealed, 30% to 100% unprompted or 50% to 100% prompted. Two things decide most cases: which behaviour band HMRC puts you in, and where within the band you land.
What counts as reasonable care?
Keeping adequate records, checking positions you are unsure about, and taking advice where a sensible person would. If you took reasonable care and the return was still wrong, there is no penalty, which is why the behaviour argument is often worth more than the numbers argument. It also matters for how many years HMRC can assess: see how far back HMRC can go.
How do I get to the bottom of the band?
Through the quality of your disclosure. HMRC gives reductions for three things: telling (up to 30% of the available reduction), helping (up to 40%) and giving access to records (up to 30%). In practice that means acknowledging the error and explaining how it happened, answering questions fully, and producing documents without delay. This is the same cooperation machinery described in our guide to handling a compliance check letter.
Can a penalty be suspended?
For careless inaccuracies, yes. HMRC can suspend a penalty for up to 2 years where it can set conditions that help you avoid the same error again, typically record-keeping or process conditions. Meet the conditions and file cleanly for the suspension period and the penalty is cancelled. Suspension is not available for deliberate behaviour, and it is something to ask for, not something HMRC always volunteers.
What about offshore matters?
Errors involving offshore income or assets carry their own, higher penalty regime, with percentages that can substantially exceed the standard bands depending on the territory involved. If there is any offshore element, specialist advice stops being optional.
Arguing the band is professional work
The difference between careless and deliberate, and between the top and bottom of a band, is decided through correspondence and negotiation, and it is exactly the work an accountant bills for during an enquiry. Tax investigation insurance covers those fees so the argument gets made properly: see who pays the accountant in an HMRC enquiry, or get a quote.