Chapter 3 — Penalties Relating to Inaccuracies
Section 182 – Penalty for inaccuracy in taxpayer document
219.This section provides that a person is liable to a penalty under this section where they give Revenue Scotland a document that falls under one of the provisions listed in the table and two conditions are met. The first condition is that the error amounts or leads to an understatement of the tax liability, a false or inflated statement of a loss or a false or inflated claim for relief or repayment of tax. The second condition is that the error is either careless or deliberate on the person’s behalf. A penalty is payable for each error in a document.
Section 183 – Amount of penalty for error in taxpayer document
220.This section provides for the amount of a penalty that is payable under section 182. Different amounts apply depending on whether the failure was careless (as determined under section 182) or deliberate and are calculated with reference to the potential lost revenue. Potential lost revenue is defined in sections 187 to 190.
Section 184 – Suspension of penalty for careless inaccuracy under section 182
221.This section provides that Revenue Scotland may, by means of a written notice, suspend all or part of a penalty which is applied where a taxpayer submits a document to Revenue Scotland containing an error and which is due to careless behaviour by the taxpayer. Subsection (2) requires that a notice served by Revenue Scotland must specify what part of the penalty is being suspended, a period not exceeding two years and the conditions of suspension with which the taxpayer must comply. Subsection (3) allows Revenue Scotland to suspend all or part of a penalty only if it meant that if a taxpayer complied with the condition of suspension the taxpayer would avoid liability to further penalties incurred under section 182 for careless inaccuracy.
Section 185 – Penalty for inaccuracy in taxpayer document attributable to another person
222.This section provides that a penalty is payable by a person (“T”) where: a) another person (“P”) submits a document to Revenue Scotland that falls under one of the provisions listed in the table in section 182; b) the document contains an inaccuracy attributable to T either deliberately supplying P with false information or deliberately withholding information from P with the intention of creating the inaccuracy and c) the inaccuracy leads to either an understatement in the tax liability or a false/inflated claim for loss or repayment of tax a penalty is payable by T whether or not P is liable to a penalty under section 182 for the same inaccuracy. The penalty amount is calculated with reference to the potential lost revenue and is 100% of the potential lost revenue. Potential lost revenue is defined in sections 187 to 190.
Section 186 – Under-assessment by Revenue Scotland
223.This section provides that a penalty is payable by a person where an assessment issued by Revenue Scotland (as defined under section 98) understates the tax liability and the person has failed to take reasonable steps to inform Revenue Scotland of that fact within 30 days of receiving the understatement. Revenue Scotland must consider whether the person knew, or should reasonably have known, about the under-assessment. References to a Revenue Scotland assessment include a Revenue Scotland determination (as defined under section 95). The penalty amount is calculated with reference to the potential lost revenue and is 30% of the potential lost revenue. Potential lost revenue is defined in sections 187 to 190.
Section 187 – Potential lost revenue: normal rule, section 188 – Potential lost revenue: multiple errors, section 189 – Potential lost revenue: losses and section 190 – Potential lost revenue: delayed tax
224.Section 187 defines “potential lost revenue” (used in the calculation of the penalty amounts in sections 183, 185 and 186) as the additional amount due and payable (either to or from Revenue Scotland) in respect of tax as a result of correcting the inaccuracy (under sections 183 and 185) or under-assessment (under section 186).
225.Section 188 provides that where a penalty under section 182 is for more than one inaccuracy, if a calculation of potential lost revenue depends on the order in which inaccuracies are corrected then careless inaccuracies are to be corrected before deliberate inaccuracies. In calculating potential lost revenue, account is to be taken of any overstatement in a document given by the same person in the same tax period. When calculating the amount of a penalty under section 182, no account will be taken of a potential overpayment by another person except where specifically allowed for elsewhere in the Act.
226.Section 189 provides that where an inaccuracy has the result of a loss being recorded and the loss has been wholly used to reduce the amount of tax payable then section 189 will apply in terms of calculating potential lost revenue. Where an inaccuracy has the result of a loss being recorded partially for the purpose of reducing the amount of tax payable then potential lost revenue will be calculated: a) with reference to the part of the loss used to reduce the amount of tax payable; and b) 10% of the loss that has not been used to reduce the amount of tax payable. This applies where no loss would have been recorded apart from the inaccuracy and also to where a different loss would have been recorded because of the inaccuracy. The potential lost revenue is nil where the nature of the loss means there is no reasonable prospect of the loss being used to reduce a tax liability.
227.Section 190 provides that where an inaccuracy results in an amount of tax being declared later than it should have been, the potential lost revenue is 5% of the delayed tax for each year of the delay. If the delay is less than one year then the potential lost revenue is a percentage equivalent to 5% per year for each separate period of delay. This section does not apply to cases where section 189 applies.
Section 191 – Special reduction in penalty under this Chapter
228.This section provides that Revenue Scotland may reduce a penalty (including any interest applied) if it thinks it reasonable to do so because of special circumstances and the penalty is applied under sections 182, 185 and 186. A person’s ability to pay tax or the fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment of another are not reasons under which the penalty can be reduced.
Section 192 – Reduction in penalty under this Chapter for disclosure
229.This section provides for Revenue Scotland to be able to reduce a penalty applied due to sections 182, 185 and 186. Any reductions applied may reflect whether or not the disclosure was unprompted (where the person has no reason to believe that Revenue Scotland is or is about to discover the information) and also the quality (timing, nature and extent) of the information disclosed. By timing this refers to how promptly the disclosure was made; by nature this refers to the level of evidence provided and the degree of access to test the disclosure; by extent this means how complete the disclosure may be.
Section 193 – Assessment of penalties under this Chapter
230.This section provides that where a person becomes liable for a penalty under sections 182, 185 and 186, Revenue Scotland must assess the penalty and then notify the person of this, including making clear the period against which the penalty is being assessed. The penalty must be paid within 30 days of Revenue Scotland issuing the penalty notification to the person and this may be combined with an existing assessment to tax.
231.The assessment of a penalty due to an error in a taxpayer document attributable to either the taxpayer or another person must be made within 12 months of either the end of the appeal period for the decision correcting the inaccuracy or the date on which the inaccuracy is corrected, whichever applies. The assessment of a penalty due to an under-assessment of tax by Revenue Scotland must be made within 12 months of either the end of the appeal period for the assessment of tax which corrected the under-statement or the date on which the understatement is corrected, whichever applies.
Section 194 – Power to change penalty provisions in Chapter 3
232.This section provides a regulation-making power for the Scottish Ministers to make provision, or further provision, about penalties under Chapter 3 of Part 8. Such regulations are subject to the affirmative procedure, may not create criminal offences but may modify any enactment. Regulations under this section do not apply to a failure which began before the date on which the regulations came into force.