Consultation: Reform of Behavioural Penalties

After recent calls for evidence regarding the The Tax Administration Framework, there has been significant support shown for the simplification and modernisation of the current penalty regime.  

The Outcome of the call for evidence suggested respondents felt penalties could be simplified and easier to understand while continuing to distinguish between genuine error and conscious attempts at 'cheating the system'. 

This consultation is aimed at seeking opinions on simplifying and strengthening penalties in two areas: 

• Penalties for Self Assessment returns submitted with inaccuracies, deliberate or not. 
• Penalties for Failure to notify HMRC that a liability to Income Tax has arisen. 

The aim is to do this by either: 

• Reforming the existing framework by retaining key elements of the existing penalty regime. 
• Exploring an alternative method by considering a redesign of penalties. 

The overall aim is to keep penalties proportionate, effective and easy to administer, yet remaining a deterrent for those who are non-compliant. 

Currently, penalties are graduated with a reduction in penalties being available based on timing, whether the taxpayer identified the issue and whether the taxpayer aided HMRC in rectifying the situation. 

• For inaccuracies in returns, HMRC will then determine if the error occurred due to a lack of reasonable care or if it was a deliberate error.  
• Failure to notify penalties are determined by the circumstances of the failure, if the taxpayer's intention was deliberate, non-deliberate and/or concealed and if there was a reasonable excuse. 

The specific areas covered in the consultation are: 

Timing of disclosure

• HMRC currently impose a penalty equal to 10% of the tax due if three years have passed before a taxpayer discloses an error or failure to notify. 
• Responses to the call for evidence suggest this discourages taxpayers to come forward. 
• The consultation seeks opinions on whether this 10% minimum penalty should be removed.  See: Question 1 on the Questions tab.

Reductions for type and quality of disclosure

• HMRC's current penalties are graduated depending on the type and quality of disclosure. 
• Type of disclosure is broken down into prompted and unprompted categories. 
• Quality of disclosure is broken down into 'telling', 'helping' and 'giving access'. 
• The consultation seeks opinions on simplifying these categories. See: Question 2 on the Questions tab. 

Deliberate and repeated inaccuracies/failure to notify

• Respondents to the call for evidence highlighted that tougher sanctions should be introduced for repeat offenders. 
• The consultation seeks opinions on proportionate appropriate penalties for repeat offenders. See: Question 3 on the Question tab.

Offshore penalty rates

• Currently, higher penalties exist for underreported assets or income held abroad. 
• Responses to the call for evidence suggest these are disproportionate, which may discourage taxpayers from contacting HMRC if they have made errors. 
• The consultation seeks opinions on simplifying the offshore penalties while still working as a deterrent for non-compliance. See: Question 4 on the Questions tab. 

Penalty suspension

• Taxpayers are currently allowed to have their penalty suspended by HMRC provided certain conditions are met. 
• This normally occurs when suspension encourages the taxpayer to make changes to avoid similar errors occurring. 
• Each penalty suspension is considered on its own merits. 
• Feedback suggests taxpayers are unaware of this service.
• The consultation suggests replacing the suspension with a 'caution'.
• The consultation seeks opinions on simplifying the penalty suspension regime. See: Question 5 on the Questions tab. 

Alternative approach

• The consultation suggests unifying the current penalty regime and stripping back behavioural considerations. The government recognises that this will come with challenges. 
• A 'misdeclaration' penalty could replace the majority of inaccuracy and failure to notify penalties. 
• A 'civil evasion' penalty would be reserved for the smaller number of cases where a taxpayer has made a conscious effort to defraud the system. 
• The consultation seeks opinions on this reform. See: Question 6 on the Questions tab.

Non-financial penalties and sanctions

• HMRC believe those who deliberately and repeatedly defraud HMRC should face tougher sanctions. 
• HMRC may draw on recent proposals by other departments on non-financial sanctions; for example, the Department for Works and Pensions is seeking to cancel driving licences of repeated benefit fraudsters. 
• The consultation seeks opinions on how to promote future compliance for repeat offenders. See: Question 7 on the Questions tab. 

Responses should be submitted to This email address is being protected from spambots. You need JavaScript enabled to view it. by 18 June 2025. 

Useful guides on this topic

Penalties: Failure to notify
What tax penalties apply if you fail to notify HMRC that you are chargeable to tax? Can they be appealed or reduced?

Penalties: Errors in returns and documents (Subscriber version)
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?

Penalties: Deliberate behaviour
What penalties apply to deliberate behaviour? What is deliberate behaviour?

Adviser's Tax Penalty Planner
A guide to the key direct and indirect tax penalty regimes for returns and payments, excluding VAT.

External link

Consultation: Reform of behavioural penalites

Question 1: What are your views on removing the minimum 10% penalties for:

1. inaccuracies disclosed after three years
2. failures to notify disclosed after 12 months for non-deliberate behaviour?

Question 2: What are your views on the ways in which HMRC could:

1. simplify penalty reductions for unprompted disclosure
2. simplify penalty reductions for the quality of disclosure?

Question 3: With reference to the existing inaccuracy and failure to notify penalty ranges, what would you consider to be proportionate and appropriate penalty rates for both deliberate behaviour and repeated instances of deliberate behaviour? Which factors should be considered when applying these?

Question 4: How could penalties for offshore non-compliance be simplified whilst still acting as an effective deterrent?

Question 5: How could HMRC simplify penalty suspension while retaining an effective prompt to taxpayers to address the source of the inaccuracy?

Question 6: What do you see as the opportunities and challenges of this approach? How does it compare with potential simplification to existing penalties, as outlined in Chapter 3?

Question 7: What is your view on HMRC’s use of tougher non-financial sanctions to deter and respond to deliberate and repeated non-compliance and to promote future compliance?