The purpose of penalties is to encourage taxpayers to comply with their obligations, act as a sanction for those who do not and to reassure those who do comply that they will not be disadvantaged by those who do not. Penalties are not used as a revenue-raising mechanism.
HMRC can apply a large number of different penalties, but they break down into three broad areas:
• Automatic penalties for failure to meet a time-bound obligation, such as submitting returns or making payments by a specified deadline;
• Penalties for failure to meet a regulatory obligation, such as the requirement to keep certain records; and
• Behaviour-based penalties for inaccurate returns and documents and failure to notify taxable status.
A penalty is not payable if a person had a reasonable excuse for failing to meet an obligation or took reasonable care to avoid submitting an inaccurate return.
HMRC does not record data on penalties issued by size of business.