If the Revenue make an enquiry into a tax return, be it a personal, partnership or company tax return and tax has been underpaid, penalties can be due. The starting point for the amount of penalty is 100% of the tax due.

So if as an example, there is £20,000 of income that has not been declared, then the payment due to HMRC could be as follows...

The interest is due whatever and is deemed just to be financial compensation for the use of the money but penalties can be mitigated for the following...

• Disclosure - up to 25% off. This refers to whether you owned up to the non-declared income. To get the full 25% you would need to have disclosed to HMRC before they contacted you but you can get 20% if you admit to everything as soon as challenged.
  
  
• Co-operation - up to 40% off. This referred to whether you did everything asked of you, on time, etc. It doesn't mean you have to do whatever is asked of you. You still have the right to defend yourself on legal and technical issues which you must do forcibly.
  
• Size and Gravity - up to 40% off. This refers to how much tax was evaded and how far you went in being deliberately fraudulent.

So you can help yourself during the enquiry mainly by co-operating and disclosing. However, it's worth remembering that the better defence you have, not only the lower the tax you can pay but as a direct result the lower the penalties as well. Being honest with your advisor allows them to give you the best possible advice. Other good advice is to not bury your head in the sand and under no circumstances try to deal with an investigation yourself.

In case you are wondering, the above add up to 105% but it is not possible to have a 5% tax rebate!

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