Schedule 46 Finance Act 2009 - Financial Business

Schedule 46 Finance Act 2009 Explained

Schedule 46 of the Finance Act 2009 significantly altered the landscape of penalties levied by HM Revenue & Customs (HMRC) for errors in tax returns and other documents. It introduced a new, standardized penalty regime intended to be fairer, more transparent, and more proportionate than the previous system.

The core principle of Schedule 46 is to link penalty amounts to the taxpayer’s behavior. This meant moving away from a system that often relied on fixed penalties, irrespective of the nature or severity of the error, to one that explicitly considered the reason for the inaccuracy. Penalties are categorized according to the taxpayer’s conduct, falling into one of three bands:

Careless: Failure to take reasonable care. This is the most common category, and penalties are generally lower than those for deliberate behavior.
Deliberate: A conscious decision to provide inaccurate information. Penalties here are significantly higher.
Deliberate and Concealed: A deliberate inaccuracy coupled with active steps to hide it from HMRC. This attracts the most severe penalties.

The level of penalty also depends on whether the error was prompted (discovered by HMRC) or unprompted (disclosed by the taxpayer before HMRC discovered it). Unprompted disclosures generally attract lower penalties as they demonstrate a willingness to correct errors.

Schedule 46 sets out a penalty range for each type of behavior. The actual penalty within that range is determined by the specific circumstances of the case. Factors considered include the size of the error, the taxpayer’s previous compliance history, and the potential impact of the inaccuracy on the Exchequer. A key element is whether the taxpayer took reasonable care in preparing their return. What constitutes “reasonable care” varies depending on the taxpayer’s circumstances and level of expertise.

Furthermore, Schedule 46 provides for reductions in penalties where the taxpayer has cooperated with HMRC’s investigation. This includes providing information, granting access to records, and generally assisting HMRC in understanding the nature and extent of the error. The level of cooperation directly impacts the size of the penalty.

It’s important to note that Schedule 46 also introduced provisions for suspending penalties in certain circumstances, typically where the taxpayer is taking steps to improve their compliance. This aims to encourage good behavior and prevent future errors.

While Schedule 46 aimed to create a fairer system, it also introduced greater complexity. Taxpayers must now understand the different categories of behavior and the factors that influence penalty amounts. The burden is often on the taxpayer to demonstrate that they took reasonable care, which can be challenging. Professional advice is often crucial to navigate this complex system effectively.

In essence, Schedule 46 of the Finance Act 2009 fundamentally shifted the focus of HMRC’s penalty regime from a primarily punitive approach to one that considers the taxpayer’s culpability and encourages proactive compliance. It remains a cornerstone of the UK’s tax administration system.