Guidance

Employee Tax Advantaged Share Schemes — Penalties for not meeting the requirements for tax advantaged status — CC/FS33

Updated 26 August 2024

This factsheet tells you about penalties we may charge if your share scheme does not meet the requirements for tax advantaged status.

The tax advantaged share schemes covered by this factsheet are:

• Schedule 2 Share Incentive Plans (SIP)
• Schedule 3 Save As You Earn (SAYE) option schemes
• Schedule 4 Company Share Option Plans (CSOP)

This factsheet is one of a series. For the full list, go to GOV.UK and search ‘HMRC compliance checks factsheets’.

When we may charge you a penalty for errors

We may charge you a penalty if, after carrying out a compliance check we find the scheme does not meet the requirements for tax advantaged status.

The amount of any penalty depends on whether the error is ‘serious’ or ‘less serious’. When deciding this, we consider the facts and circumstances of the error.

A ‘serious’ error is a fundamental or material error in the plan rules or in the way in which the plan is operated.

A ‘less serious’ error is an error that can be put right by amending or repairing the plan rules.

How we work out the amount of a penalty

Serious errors

For serious errors, we charge tax related penalties as a percentage of the Income Tax and National Insurance contributions (NICs) relief given or due on options granted to employees. Legally, we can charge up to twice the amount of tax and NICs relief given or due, but this would be unusual.

A minimum penalty will apply. This will be:

• equal to the total Income Tax and NICs we estimate would have been payable if the scheme had not been operated in a tax advantaged way
• for the period between the date when the serious error started and the date of the closure notice or the date specified in that notice

When determining the amount of the penalty, we take into account whether the disclosure was prompted or unprompted.

An ‘unprompted disclosure’ is where you tell us about an error before you have any reason to believe that we’ve discovered it, or were about to discover it. A ‘prompted disclosure’ is where you tell us about an error at any other time.

Once we have started a check, a disclosure can only be unprompted if:

• it is about an unrelated inaccuracy
• you had no reason to believe that we could have found it during our check

The disclosure reduction is worked out as follows:

• unprompted disclosure — the maximum penalty will be reduced to 100% of the total tax and NICs that would have been payable
• prompted disclosure — the maximum penalty will be reduced to 150% of the total tax and NICs that would have been payable
• no disclosure — the penalty will remain at the maximum

Here are 2 examples of serious errors for ‘unprompted’ and ‘prompted’ disclosures.

We have decided that the error is serious and the disclosure is unprompted

In this example we have worked out the amount of tax and NICs relief given is the sum of £50,000.

The penalty is based on twice the amount of tax and NICs relief, so in this example the penalty would be £50,000.

Twice the amount of tax and NICs relief	£100,000
Less unprompted disclosure reduction of 100% of the amount of tax and NICs relief	£50,000
Penalty due	£50,000

We have decided that the error is serious and the disclosure is prompted

In this example we have worked out the amount of tax and NICs relief given is the sum of £50,000.

Twice the amount of tax and NICs relief	£100,000
Less prompted disclosure reduction of 50% of the amount of tax and NICs relief	£25,000
Penalty due	£75,000

Less serious errors

For less serious errors we start with the maximum amount which is the lesser of either £5,000, or the total amount of tax and NICs relief given or due.

To work out the penalty we consider whether the disclosure was prompted or unprompted.

The penalty is worked out as follows:

• unprompted disclosure — the penalty will be reduced by 100%
• prompted disclosure — the penalty will be reduced by 50%
• no disclosure — the penalty will remain at the maximum

An example of a less serious error

In this example the total amount of tax and NICs relief given or due is £4,000, therefore the maximum penalty is £4,000. The disclosure is prompted.

The amount of tax and NICs relief	£4,000
Less prompted disclosure reduction of 50% of the amount of tax and NICs relief	£2,000
Penalty due	£2,000

Where we consider the error to be ’less serious‘, we will ask you to ‘repair’ or correct the error. We will ask you to do this within 90 days of either:

• the end of the appeal period of the decision
• the date that an appeal against the decision is determined or withdrawn

If you do not repair these errors, we will charge you a further penalty. This will be based on the amount of tax and NICs relief given or due on share awards or options granted to employees. Legally, the maximum penalty we can charge is up to twice the amount of tax and NICs relief given or due but this would be unusual.

This further penalty is worked out in the same way as a ‘serious penalty’.

If you disagree with a decision

If we make a decision that you can appeal against, we’ll write to you about the decision and tell you what to do if you disagree. For more information about your appeal rights, go to GOV.UK and search ‘HMRC1’ or ‘disagree with a tax decision’.

Your rights if we’re considering penalties

The European Convention on Human Rights gives you important rights when we’re considering charging certain penalties. If we’re considering penalties, we’ll tell you if these rights apply and ask you to confirm that you understand them.

You can find full details about these rights in factsheet CC/FS9, ‘The Human Rights Act and penalties’.

Go to GOV.UK and search ‘CC/FS9’.

If you need help

If you have any health or personal circumstances that may make it difficult for you to deal with us, please tell the officer that’s contacted you. We’ll help you in whatever way we can. For more details, go to GOV.UK and search ‘get help from HMRC if you need extra support’.

You can also ask someone else to deal with us on your behalf, for example, a professional adviser, friend or relative. We may however still need to talk or write to you directly about some things. If we need to write to you, we’ll send a copy of our letter to the person you’ve asked us to deal with. If we need to talk to you, they can be with you when we do, if you prefer.

More information

Our privacy notice

Our privacy notice sets out the standards that you can expect from us when we ask for information or hold information about you. Go to GOV.UK and search ‘HMRC Privacy Notice’.

If you are not happy with our service

Please tell the person or office you’ve been dealing with. They’ll try to put things right. If you are still not happy, they’ll tell you how to make a formal complaint.