CH116500 - Offshore matters: inaccuracies penalties: deciding which category an inaccuracy falls into
Inaccuracy falls into one category
Where there is an offshore matter, see CH116200, and the inaccuracy involves only one territory, it should usually be straightforward to decide which category an inaccuracy falls into.
Example 1
John runs a sales business in the UK. He suppresses his turnover by not recording some of his UK sales. He therefore includes an inaccurate profit figure on his self-assessment return. This inaccuracy involves a domestic matter and falls within category 1, see CH116300.
Before the filing date of that year’s return, he moves the money from these sales out of the UK and invests it in a bank account in a category 3 territory. He also fails to declare the interest from that account on his self-assessment return. As the supressed income is transferred to a territory outside the UK this now constitutes an offshore transfer and so the whole of the income (suppressed and interest) falls within category 3.
Example 2
Sally disposes of an asset in a category 2 territory. She does not declare the gain on her return. This inaccuracy involves an offshore matter and falls within category 2.
She invests the proceeds from the disposal in an offshore bank account in a category 1 territory. She does not disclose the bank interest on her self-assessment return. This inaccuracy (the omitted interest) is an offshore matter and falls within category 1.
Inaccuracy falls into more than one category
However, an inaccuracy may fall into more than one category. This can only happen where the offshore matter, see CH116200, relates to more than one territory and the different territories are in different categories, see CH116300.
If the inaccuracy falls into more than one category
- treat the inaccuracy as if it were separate inaccuracies,
- place each of those separate inaccuracies in one of the categories according to the matter that it involves, and
- share the potential lost revenue between the separate inaccuracies in a just and reasonable way.
Example 3
Max is a sole trader with trading income from three territories. One territory is in category 1, one in category 2 and one in category 3. He does not fully account for the trading income from all of these territories on his return.
The inaccuracy should be treated as three inaccuracies and the potential lost revenue should be shared amongst the three categories. How this is done will depend on the facts of the situation but the division must be done in a just and reasonable way.