There is a great deal in this group and I have a great deal of briefing for it, but I think that I can boil it down to its essentials. Clause 96 and schedule 24 contain a couple of important features, because together they provide a single new penalty regime for incorrect returns for income tax, corporation tax, PAYE, national insurance contributions and VAT. They will replace the separate—and very different—regimes that we currently have for each of those elements.

The penalty will be determined by the amount of tax understated, the nature of the behaviour giving rise to the understatement, and the extent of disclosure by the taxpayer. There will be a right of appeal against all penalties. The penalties will be set as a percentage of  the understated tax. For failing to take reasonable care, the penalty will be 30 per cent.; for deliberate action, 70 per cent., and for deliberate and concealed action, 100 per cent. Importantly, the legislation lays down substantial reductions for prompted or unprompted disclosure. In special circumstances, HMRC will have discretion to reduce the penalty further.

A different measure of penalty will apply where inaccuracy results in tax being declared late rather than not at all. In addition, a new concept of suspended penalties will be introduced, so that HMRC may suspend all or part of a penalty for careless inaccuracies. The significance of that is to prevent the penalties from becoming a barrier to people coming forward when things have gone wrong.

There will therefore also be substantial reductions for unprompted disclosure by taxpayers, including down to nil. Disclosure means telling HMRC about the inaccuracy, taking active steps to correct it and giving HMRC access to check the details. To encourage taxpayers to work with HMRC to establish the correct tax position, there are also reductions to penalties for prompted disclosure, when a disclosure is made in response to a challenge from HMRC. Setting out the penalty and reduction levels, and the approach, in this way in statute for the first time is a major step towards making the regime more visible, effective and transparent.

I come now to the Government amendments, which I pay tribute to the hon. Member for Falmouth and Camborne for prompting. We discussed the issue in Committee of the whole House and I undertook to consider the matter further and to return with my own amendments, which are set out on the amendment paper. She and others reflected a concern about the phrase “HMRC think”, which occurs in a number of places in schedule 24. The Government amendments remove that phrase without replacing it in each instance. Let us be clear. The meaning and effect of the schedule are not changed by the amendments, but they have helped to reassure certain representative bodies, and the CIOT made it clear that it would welcome such an amendment.

There is one place where we consider that the word “think” should be retained, which is paragraph 11(1), which states:

“If they think it right because of special circumstances, HMRC may reduce a penalty”.

The distinction is that this is a discretionary measure and therefore different from the other places where we are making the amendment. The word “think” remains appropriate in that place in the schedule.

There has been extensive consultation, as part of the wider HMRC powers and penalties review, on the provisions. They have met with broad approval, in principle and, largely, in detail, too. The legislative framework in the Bill is only the first stage of the work. Work will continue to develop the guidance required to underpin it, in consultation with interested groups. We will ensure that that is then widely published and communicated. In due course, people will look back on this aspect of the Finance Bill as a significant reform of our penalties regime.