Introduction to this document

Letter to get a tax penalty reduced or suspended

HMRC has the power to reduce a maximum tax penalty to take account of the nature and quality of any disclosure you have made about an “inaccuracy”. How do you get this on the inspector’s negotiating agenda?

What will trigger a penalty?

A tax penalty can now be triggered in two possible ways. Firstly, a document (basically any type of HMRC return) is delivered to HMRC and contains an inaccuracy that leads either to a loss of tax, or to an inflated claim for relief. Secondly, you accept an assessment by HMRC knowing that it’s insufficient and take no action (within 30 days) to advise it of your error. No penalty will be charged if it can be shown that the error was due to a simple mistake that did not amount to carelessness. The maximum level of penalty for each offence is a percentage of tax that has been lost to HMRC as a result of the offence.

Taking account of disclosure

Penalties can be reduced by HMRC to take account of the nature and quality of any disclosure made. This does not just mean bringing the matter to its attention “unprompted” but, for example, includes co-operation given in quantifying the error and providing access to records.

“Unprompted disclosure” occurs when you bring the error to HMRC’s notice without it being aware of it or having already started an inquiry. Any other type of disclosure will be regarded as prompted but both can make a significant difference to reducing the level of penalty.

HMRC is not allowed, however, to go below a minimum level which the law stipulates. These are as follows:

Nature of offence




Min unprompted


Min prompted


Genuine mistake despite taking reasonable care




Careless action








Deliberate no concealment








Deliberate with concealment









From this table you can see that there is a significant effect in making a full unprompted disclosure. Even in prompted disclosure situations the level of co-operation will make a large difference to the ultimate penalty level. Use our Letter to Get a Tax Penalty Reduced to help you achieve these savings.