Calculating Penalty Rates for Careless Tax Inaccuracies with Prompted Disclosure

How the WRA calculates the penalty percentage for an inaccuracy

The Welsh Revenue Authority works out a penalty percentage by first identifying the correct statutory penalty range for the taxpayer’s behaviour and whether the disclosure was prompted or unprompted. It then reduces the penalty within that range according to the quality of the taxpayer’s disclosure. In the example of a careless inaccuracy with a prompted disclosure and a 70% reduction for disclosure quality, the final penalty rate is 19.5%.

• For a careless inaccuracy with a prompted disclosure, the penalty range is 15% to 30% of the potential lost revenue.
• The WRA calculates the spread of the range first, so here the spread is 30% minus 15%, which is 15%.
• The disclosure reduction is applied to that spread, not directly to the maximum penalty percentage.
• In the example, 70% of the 15% spread is 10.5%, which is then deducted from the 30% maximum to give 19.5%.
• The final penalty percentage is then applied to the potential lost revenue to work out the penalty amount.
• The main disputes in practice are often about the taxpayer’s behaviour, whether disclosure was prompted, and what reduction should be allowed for telling, helping and giving.

Scroll down for the full analysis.

How the WRA works out a penalty percentage rate for an inaccuracy

This page explains how the Welsh Revenue Authority calculates the actual penalty percentage once it has identified the relevant penalty range and decided what reduction to give for the quality of a taxpayer’s disclosure. The calculation matters because the final percentage is what gets applied to the potential lost revenue to produce the penalty amount.

What this rule is about

When the WRA charges a penalty for an inaccuracy, it does not simply pick any figure at random. It starts with the statutory penalty range that applies to the behaviour and the type of disclosure, then reduces the penalty within that range according to the quality of the taxpayer’s disclosure.

The example in the source material deals with a careless inaccuracy in a tax return where the taxpayer did not disclose the problem before the WRA began its enquiry. That means the disclosure is prompted rather than unprompted. In that situation, the applicable penalty range is 15% to 30% of the potential lost revenue.

What the official source says

The source explains a three-step method:

• identify the minimum and maximum percentages in the relevant penalty range
• work out the spread between them
• apply the percentage reduction for the quality of disclosure to that spread, then deduct the result from the maximum penalty percentage

In the example:

• the penalty range is 15% to 30%
• the reduction for quality of disclosure is 70%
• the range spread is 30% minus 15% = 15%
• 70% of that spread is 10.5%
• the final penalty percentage is 30% minus 10.5% = 19.5%

So the penalty percentage rate is 19.5%.

What this means in practice

The important practical point is that the reduction for disclosure quality is not taken directly off the top of the maximum penalty in a simple standalone way. Instead, it is used to move the penalty down within the permitted range.

That means two things:

• the starting framework is always the relevant statutory range
• better disclosure reduces the penalty, but only within that range

In this example, even though the quality of disclosure reduction is 70%, the penalty does not fall to 9%. It falls to 19.5%, because the 70% reduction is applied to the 15 percentage point range between 15% and 30%, not to the full 30% maximum.

This is a common point of confusion. The reduction affects how far down the range the penalty moves. It does not replace the range.

How to analyse it

If you need to work out the penalty percentage rate, ask these questions in order:

• What behaviour has been identified, for example careless inaccuracy?
• Was the disclosure prompted or unprompted?
• What penalty range applies to that combination?
• What percentage reduction has been allowed for the quality of disclosure, based on telling, helping and giving?
• What is the numerical difference between the top and bottom of the range?
• How much of that difference is removed by the disclosure reduction?
• What figure do you get when that amount is deducted from the maximum percentage?

Once you have the final penalty percentage rate, that percentage is then applied to the potential lost revenue to calculate the penalty amount.

Example

Illustration:

A taxpayer submits a return containing a careless inaccuracy. They do not tell the WRA about it before the WRA starts an enquiry, so the disclosure is prompted. The taxpayer then cooperates once the issue is raised, and the WRA gives a 70% reduction for the quality of disclosure.

• Penalty range: 15% to 30%
• Range spread: 30% – 15% = 15%
• Reduction applied to spread: 15% x 70% = 10.5%
• Penalty percentage rate: 30% – 10.5% = 19.5%

If the potential lost revenue were then calculated separately, the 19.5% rate would be applied to that figure.

Why this can be difficult in practice

The arithmetic itself is straightforward once the inputs are known. The more difficult issues usually come earlier:

• whether the inaccuracy was in fact careless rather than deliberate
• whether the disclosure is properly treated as prompted or unprompted
• what reduction should be given for the quality of disclosure

The source material assumes those points have already been decided. In real cases, they may be disputed, and they can make a significant difference to the penalty range or to where the final percentage falls within that range.

Another practical difficulty is that people sometimes assume a percentage reduction for disclosure should be deducted directly from the maximum penalty percentage. That is not what the example shows. The reduction operates across the penalty range, not as a simple subtraction from the maximum.

Key takeaways

• The WRA first identifies the correct penalty range, then adjusts within that range for disclosure quality.
• The disclosure reduction is applied to the gap between the minimum and maximum percentages, not directly to the full maximum percentage.
• In the example of a careless inaccuracy with a prompted disclosure and a 70% quality reduction, the penalty percentage rate is 19.5%.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Calculating Penalty Rates for Careless Tax Inaccuracies with Prompted Disclosure

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