Finance Act 2007

Part 1U.K.Liability for penalty

Error in taxpayer's documentU.K.

1(1)A penalty is payable by a person (P) where—U.K.

(a)P gives HMRC a document of a kind listed in the Table below, and

(b)Conditions 1 and 2 are satisfied.

(2)Condition 1 is that the document contains an inaccuracy which amounts to, or leads to—

(a)an understatement of [F1a] liability to tax,

(b)a false or inflated statement of a loss F2..., or

(c)a false or inflated claim to repayment of tax.

(3)Condition 2 is that the inaccuracy was [F3careless (within the meaning of paragraph 3) or deliberate on P’s part].

(4)Where a document contains more than one inaccuracy, a penalty is payable for each inaccuracy.

F20(4A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F20(4B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F20(4C). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F21(5)In relation to a return under paragraph 2 of Schedule 2 to the Oil Taxation Act 1975 [F22or a statement or declaration under paragraph 13A of that Schedule], references in this Schedule to P include any person who, after the giving of the return for a taxable field (within the meaning of that Act), becomes the responsible person for the field (within the meaning of that Act).]

[F23Error in taxpayer's document attributable to another personU.K.

1A(1)A penalty is payable by a person (T) where—U.K.

(a)another person (P) gives HMRC a document of a kind listed in the Table in paragraph 1,

(b)the document contains a relevant inaccuracy, and

(c)the inaccuracy was attributable to T deliberately supplying false information to P (whether directly or indirectly), or to T deliberately withholding information from P, with the intention of the document containing the inaccuracy.

(2)A “relevant inaccuracy” is an inaccuracy which amounts to, or leads to—

(a)an understatement of a liability to tax,

(b)a false or inflated statement of a loss, or

(c)a false or inflated claim to repayment of tax.

(3)A penalty is payable under this paragraph in respect of an inaccuracy whether or not P is liable to a penalty under paragraph 1 in respect of the same inaccuracy.]

Under-assessment by HMRCU.K.

2(1)A penalty is payable by a person (P) where—U.K.

(a)an assessment issued to P by HMRC understates P's liability to [F24a relevant tax], and

(b)P has failed to take reasonable steps to notify HMRC, within the period of 30 days beginning with the date of the assessment, that it is an under-assessment.

(2)In deciding what steps (if any) were reasonable HMRC must consider—

(a)whether P knew, or should have known, about the under-assessment, and

(b)what steps would have been reasonable to take to notify HMRC.

[F25(3)In sub-paragraph (1) “relevant tax” means any tax mentioned in the Table in paragraph 1.]

[F26(4)In this paragraph (and in Part 2 of this Schedule so far as relating to this paragraph)—

(a)“assessment” includes determination, and

(b)accordingly, references to an under-assessment include an under-determination.]

Degrees of culpabilityU.K.

3(1)[F27For the purposes of a penalty under paragraph 1, inaccuracy in] a document given by P to HMRC is—U.K.

(a)“careless” if the inaccuracy is due to failure by P to take reasonable care,

(b)“deliberate but not concealed” if the inaccuracy is deliberate [F28on P's part] but P does not make arrangements to conceal it, and

(c)“deliberate and concealed” if the inaccuracy is deliberate [F28on P's part] and P makes arrangements to conceal it (for example, by submitting false evidence in support of an inaccurate figure).

(2)An inaccuracy in a document given by P to HMRC, which was neither careless nor deliberate [F29on P's part] when the document was given, is to be treated as careless if P—

(a)discovered the inaccuracy at some later time, and

(b)did not take reasonable steps to inform HMRC.

[F30(3)Paragraph 47 of Schedule 19 to FA 2016 (special measures for persistently unco-operative large businesses) provides for certain inaccuracies to be treated, for the purposes of this Schedule, as being due to a failure by P to take reasonable care.]

[F31Errors related to avoidance arrangementsU.K.

3A(1)This paragraph applies where a document of a kind listed in the Table in paragraph 1 is given to HMRC by a person (“P”) and the document contains an inaccuracy which—U.K.

(a)falls within paragraph 1(2), and

(b)arises because the document is submitted on the basis that particular avoidance arrangements (within the meaning of paragraph 3B) had an effect which in fact they did not have.

(2)It is to be presumed that the inaccuracy was careless, within the meaning of paragraph 3, unless—

(a)the inaccuracy was deliberate on P's part, or

(b)P satisfies HMRC or (on an appeal notified to the tribunal) the tribunal that P took reasonable care to avoid inaccuracy.

(3)In considering whether P took reasonable care to avoid inaccuracy, HMRC and (on an appeal notified to the tribunal) the tribunal must take no account of any evidence of any reliance by P on advice where the advice is disqualified.

(4)Advice is “disqualified” if any of the following applies—

(a)the advice was given to P by an interested person;

(b)the advice was given to P as a result of arrangements made between an interested person and the person who gave the advice;

(c)the person who gave the advice did not have appropriate expertise for giving the advice;

(d)the advice took no account of P's individual circumstances;

(e)the advice was addressed to, or given to, a person other than P;

but this is subject to sub-paragraphs (5) and (7).

(5)Where (but for this sub-paragraph) advice would be disqualified under any of paragraphs (a) to (c) of sub-paragraph (4), the advice is not disqualified under that paragraph if at the relevant time P—

(a)has taken reasonable steps to find out whether the advice falls within that paragraph, and

(b)reasonably believes that it does not.

(6)In sub-paragraph (4) “an interested person” means—

(a)a person, other than P, who participated in the avoidance arrangements or any transaction forming part of them, or

(b)a person who for any consideration (whether or not in money) facilitated P's entering into the avoidance arrangements.

(7)Where (but for this sub-paragraph) advice would be disqualified under paragraph (a) of sub-paragraph (4) because it was given by a person within sub-paragraph (6)(b), the advice is not disqualified under that paragraph if—

(a)the person giving the advice had appropriate expertise for giving it,

(b)the advice took account of P's individual circumstances, and

(c)at the time when the question whether the advice is disqualified arises—

(i)Condition E in paragraph 3B(5) is met in relation to the avoidance arrangements, but

(ii)none of Conditions A to D in paragraph 3B(5) is or has at any time been met in relation to them.

(8)If the document mentioned in sub-paragraph (1) is given to HMRC by P as a personal representative of a deceased person (“D”)—

(a)sub-paragraph (4) is to be read as if—

(i)the references in paragraphs (a) and (b) to P were to P or D;

(ii)the reference in paragraph (d) to P were to D, and

(iii)the reference in paragraph (e) to a person other than P were to a person who is neither P nor D,

(b)sub-paragraph (6) is to be read as if—

(i)the reference in paragraph (a) to P were a reference to the person to whom the advice was given, and

(ii)the reference in paragraph (b) to P were to D (or, where P also participated in the avoidance arrangements, P or D), and

(c)sub-paragraph (7) is to be read as if the reference in paragraph (b) to P were to D.

(9)In this paragraph—

• “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);

• “the relevant time” means the time when the document mentioned in sub-paragraph (1) is given to HMRC;

• “the tribunal” has the same meaning as in paragraph 17 (see paragraph 17(5A)).

3B(1)In paragraph 3A “avoidance arrangements” means, subject to sub-paragraph (3), arrangements which fall within sub-paragraph (2).U.K.

(2)Arrangements fall within this sub-paragraph if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.

(3)Arrangements are not avoidance arrangements for the purposes of paragraph 3A if (although they fall within sub-paragraph (2))—

(a)they are arrangements which accord with established practice, and

(b)HMRC had, at the time the arrangements were entered into, indicated its acceptance of that practice.

(4)If, at any time, any of Conditions A to E is met in relation to particular arrangements—

(a)for the purposes of this Schedule the arrangements are to be taken to fall within (and always to have fallen within) sub-paragraph (2), and

(b)in relation to the arrangements, sub-paragraph (3) (and the reference to it in sub-paragraph (1)) are to be treated as omitted.

This does not prevent arrangements from falling within sub-paragraph (2) other than by reason of one or more of Conditions A to E being met.

(5)Conditions A to E are as follows—

(a)Condition A is that the arrangements are DOTAS arrangements within the meaning given by section 219(5) and (6) of FA 2014;

(b)Condition B is that the arrangements are disclosable VAT arrangements or disclosable indirect tax arrangements for the purposes of Schedule 18 to FA 2016 (see paragraphs 8A to 9A of that Schedule);

(c)Condition C is that both of the following apply—

(i)P has been given a notice under a provision mentioned in sub-paragraph (6) stating that a tax advantage arising from the arrangements is to be counteracted, and

(ii)that tax advantage has been counteracted under section 209 of FA 2013;

(d)Condition D is that a follower notice under section 204 of FA 2014 has been given to P by reference to the arrangements (and not withdrawn) and—

(i)the necessary corrective action for the purposes of section 208 of FA 2014 has been taken in respect of the denied advantage, or

(ii)the denied advantage has been counteracted otherwise than as mentioned in sub-paragraph (i);

(e)Condition E is that a tax advantage asserted by reference to the arrangements has been counteracted (by an assessment, an amendment of a return or claim, or otherwise) on the basis that an avoidance-related rule applies in relation to P's affairs.

(6)The provisions referred to in sub-paragraph (5)(c)(i) are—

(a)paragraph 12 of Schedule 43 to FA 2013 (general anti-abuse rule: notice of final decision);

(b)paragraph 8 or 9 of Schedule 43A to that Act (pooled or bound arrangements: notice of final decision);

(c)paragraph 8 of Schedule 43B to that Act (generic referrals: notice of final decision).

(7)In sub-paragraph (5)(d) the reference to giving a follower notice to P includes giving a partnership follower notice in respect of a partnership return in relation to which P is a relevant partner; and for the purposes of this sub-paragraph—

(a)“relevant partner” has the meaning given by paragraph 2(5) of Schedule 31 to FA 2014;

(b)a partnership follower notice is given “in respect of” the partnership return mentioned in paragraph 2(2)(a) or (b) of that Schedule.

(8)For the purposes of sub-paragraph (5)(d) it does not matter whether the denied advantage has been dealt with—

(a)wholly as mentioned in one or other of sub-paragraphs (i) and (ii) of sub-paragraph (5)(d), or

(b)partly as mentioned in one of those sub-paragraphs and partly as mentioned in the other;

and “the denied advantage” has the same meaning as in Chapter 2 of Part 4 of FA 2014 (see section 208(3) of and paragraph 4(3) of Schedule 31 to that Act).

(9)For the purposes of sub-paragraph (5)(e) a tax advantage has been “asserted by reference to” the arrangements if a return, claim or appeal has been made by P on the basis that the tax advantage results from the arrangements.

(10)In this paragraph—

• “arrangements” has the same meaning as in paragraph 3A;

• “avoidance-related rule” has the same meaning as in Part 4 of Schedule 18 to FA 2016 (see paragraph 25 of that Schedule);

• a “tax advantage” includes—

  (a)

  relief or increased relief from tax,

  (b)

  repayment or increased repayment of tax,

  (c)

  avoidance or reduction of a charge to tax or an assessment to tax,

  (d)

  avoidance of a possible assessment to tax,

  (e)

  deferral of a payment of tax or advancement of a repayment of tax,

  (f)

  avoidance of an obligation to deduct or account for tax, and

  (g)

  in relation to VAT, anything which is a tax advantage for the purposes of Schedule 18 to FA 2016 under paragraph 5 of that Schedule.]

[F32Errors related to transfer pricing recordsU.K.

3C(1)This paragraph applies where—U.K.

(a)a document of a kind listed in the Table in paragraph 1 relating to a relevant tax period is given to HMRC by a person (“P”),

(b)the document contains an inaccuracy—

(i)which falls within paragraph 1(2), and

(ii)which involves the calculation of profits or losses in accordance with Part 4 of TIOPA 2010 (transfer pricing) for the purposes of that period, and

(c)the relevant person (whether or not P) failed to comply, in relation to specified relevant transfer pricing records that relate to the inaccuracy, with one or more of—

(i)section 12B of TMA 1970 (records to be kept for the purposes of returns),

(ii)paragraph 21 of Schedule 18 to FA 1998 (duty to keep and preserve records), and

(iii)an information notice (within the meaning of Schedule 36 to FA 2008 (information and inspection powers)).

(2)It is to be presumed that the inaccuracy was careless, within the meaning of paragraph 3, unless—

(a)the inaccuracy was deliberate on P’s part, or

(b)P satisfies HMRC or (on an appeal notified to the tribunal) the tribunal that P took reasonable care to avoid the inaccuracy.

(3)Sub-paragraphs (4) to (6) apply for the purposes of this paragraph.

(4)“Relevant person”, in relation to a document of a kind listed in the Table in paragraph 1, means—

(a)the person to whose tax liability the document relates,

(b)in the case of a return under section 8A of TMA 1970 (trustee's return), a relevant trustee (within the meaning of that Act), or

(c)in the case of a partnership return, or a statement, declaration or accounts in connection with a partnership return, a person who was required by a notice under section 12AA of TMA 1970 (partnership return) to make and deliver a return in respect of relevant tax period.

(5)“Relevant tax period” means a tax period—

(a)in respect of which—

(i)the person mentioned in sub-paragraph (4)(a),

(ii)in the case mentioned in sub-paragraph (4)(b), the trustees of the trust concerned, or

(iii)in the case mentioned in sub-paragraph (4)(c), the partnership to which the partnership return relates,

together with one or more other enterprises, constitutes an MNE Group within the meaning of the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016 (S.I. 2016/237) (see regulation 2(3) of those Regulations), and

(b)in respect of which the MNE Group meets the threshold requirement within the meaning of those Regulations (see regulations 3(2) to (4) of those Regulations).

(6)Records are “specified relevant transfer pricing records” if—

(a)they are relevant transfer pricing records specified, or of a description specified, in regulations under section 12B of TMA 1970 or paragraph 21 of Schedule 18 to FA 1998 (duties to keep and preserve records), and

(b)the relevant person is required to keep and preserve those records under either or both of those provisions.]