Schedule 51 Finance Act 2009

Schedule 51 of the Finance Act 2009 (UK) introduced a comprehensive penalty regime for errors and failures in tax returns and other tax-related documents. This regime, which has been amended since its original enactment, sought to create a fairer and more consistent approach to penalties compared to the previous, often fragmented, system. The core aim was to encourage taxpayers to comply with their obligations accurately and on time.

The schedule applies to a wide range of taxes including income tax, corporation tax, VAT, and capital gains tax. It operates on the principle of 'reasonable care,' placing the onus on taxpayers to demonstrate that they have taken sufficient steps to ensure the accuracy of their returns. The level of penalty imposed is directly related to the behavior that led to the inaccuracy, ranging from 'reasonable excuse' (no penalty) to 'deliberate' (highest penalty).

The behavior categories are crucial. 'Reasonable excuse' means something unforeseeable or outside the taxpayer's control prevented compliance. 'Failure to take reasonable care' constitutes a simple mistake despite taking some, but insufficient, steps to be accurate. 'Careless' conduct suggests a lack of attention to detail and failure to meet the expected standard of care. 'Deliberate but not concealed' means the error was intentional but not actively hidden from HMRC. Finally, 'Deliberate and concealed' signifies an intentional and active attempt to hide the inaccuracy.

The amount of the penalty is calculated as a percentage of the potential lost revenue (PLR), which is the amount of tax underpaid or over-claimed due to the inaccuracy. For failure to take reasonable care, the penalty ranges from 0% to 30% of the PLR. For careless conduct, the range is 0% to 30%. Deliberate but not concealed errors attract penalties ranging from 20% to 70% of the PLR. The most severe penalties, ranging from 30% to 100% of the PLR, are reserved for deliberate and concealed inaccuracies.

HMRC can reduce penalties if the taxpayer discloses the error promptly and assists them in quantifying the inaccuracy. This reflects a move towards encouraging openness and cooperation. The degree of reduction depends on the 'quality of disclosure', considering factors like telling, helping and giving access. A 'prompted' disclosure receives less reduction than an 'unprompted' one.

Taxpayers have the right to appeal against penalties imposed under Schedule 51. Appeals can be made if they believe they had a reasonable excuse for the failure, that the penalty is too high, or that the penalty is based on an incorrect assessment of the PLR. Appeals are initially made to HMRC and, if unresolved, can be taken to the First-tier Tribunal.

Schedule 51 significantly impacted tax compliance in the UK by providing a structured framework for penalties. While it aimed for fairness and consistency, the application and interpretation of the rules have been subject to debate. Taxpayers must understand their obligations and take reasonable care to ensure the accuracy of their returns to avoid penalties under this schedule.