Finance Act 1996

20 (1) Where, for an accounting period—

(a) a return is made which understates a person’s liability to tax or overstates his entitlement to credit, or

(b) an assessment is made which understates a person’s liability to tax and, at the end of the period of 30 days beginning on the date of the assessment, he has not taken all such steps as are reasonable to draw the understatement to the attention of the Commissioners,

the person concerned is liable, subject to sub-paragraphs (3) and (4) below, to a penalty equal to 5 per cent. of the amount of the understatement of liability or (as the case may be) overstatement of entitlement.

(2) Where—

(a) a return for an accounting period overstates or understates to any extent a person’s liability to tax or his entitlement to credit, and

(b) that return is corrected, in such circumstances and in accordance with such conditions as may be prescribed by regulations, by a return for a later accounting period which understates or overstates, to the corresponding extent, that liability or entitlement,

it shall be assumed for the purposes of this paragraph that the statement made by each such return is a correct statement for the accounting period to which the return relates.

(3) Conduct falling within sub-paragraph (1) above shall not give rise to liability to a penalty under this paragraph if the person concerned furnishes full information with respect to the inaccuracy concerned to the Commissioners—

(a) at a time when he has no reason to believe that enquiries are being made by the Commissioners into his affairs, so far as they relate to tax, and

(b) in such form and manner as may be prescribed by regulations or specified by the Commissioners in accordance with provision made by regulations.

(4) Where, by reason of conduct falling within sub-paragraph (1) above—

(a) a person is convicted of an offence (whether under this Part of this Act or otherwise), or

(b) a person is assessed to a penalty under paragraph 18 above,

that conduct shall not also give rise to liability to a penalty under this paragraph.

(5) In this paragraph “credit” means credit for which provision is made by regulations under section 51 of this Act.