When HMRC opens an enquiry into a landlord's tax return and finds the figures wrong, the penalty is calculated under Schedule 24 of the Finance Act 2007. This is HMRC's working penalty regime for inaccuracies. The maxima are well known in headline form (30 per cent, 70 per cent, 100 per cent) but the operational detail (offshore territory uplift to 200 per cent, the mitigation floors, the suspension mechanic, the asset-move stacking under Schedule 21 FA 2015) is where landlord-facing penalty cases are actually won or lost.
This page walks the four operational layers: the behaviour categorisation that decides which band you sit in, the standard maxima under paragraph 4, the offshore Category 2 / Category 3 uplift under paragraph 4A, and the mitigation floors under paragraph 10. It then covers the asset-move stack under Schedule 21 FA 2015, the suspension mechanic under paragraph 14, and the 30-day appeal route to the First-tier Tribunal.
One important framing point first. Schedule 24 governs inaccuracy penalties: figures in returns that are wrong. It does not govern late filing (Schedule 55 FA 2009), late payment (Schedule 56 FA 2009) or failure to notify chargeability at all (Schedule 41 FA 2008). Those are three separate regimes, and on the same facts a landlord can face penalties under more than one. This page is about Schedule 24.
The three behaviour bands under Schedule 24 paragraph 3
Schedule 24 paragraph 3 sets three behaviour categories. The band fixes the standard maximum penalty, and the band is the single most important argument in any Schedule 24 penalty negotiation because the maxima are very different.
Careless
Careless means failure to take reasonable care. HMRC judges this objectively against what would be expected of a prudent landlord in the circumstances. Typical careless patterns in rental-income enquiries include: missing receipts for repair claims that turn out to be capital improvements, double-claiming expenses across two properties, mis-classifying a furnished holiday let, transposing figures from the lettings agent statement, or relying on incorrect software defaults. Carelessness is the default starting point HMRC reaches for if a return is wrong and there is no evidence of intent.
Deliberate but not concealed
Deliberate is a knowing-falsity test. The Supreme Court in HMRC v Tooth [2021] UKSC 17 set the bar at the taxpayer knowing the figure being submitted was wrong. It is not enough for HMRC to argue that the landlord ought to have known, or that any reasonable person would have spotted the error. There must be evidence of subjective awareness. In landlord cases this typically arises where the landlord has admitted to a third party (accountant, family member, online forum) that the rental income was being omitted, or where the gap between actual receipts and declared figures is so large that it cannot be reconciled with carelessness.
Deliberate and concealed
This is the top band. It requires deliberate inaccuracy plus arrangements to conceal: false invoices, document destruction, routing tenants' payments through unrecorded accounts, fabricated repair receipts, or asking tenants to pay cash. HMRC needs evidence of the active concealment step, not just the deliberate inaccuracy.
The bands matter because the maxima under paragraph 4 are 30 per cent, 70 per cent and 100 per cent respectively (for Category 1 territories, see below). Pushing a case down from deliberate to careless can halve or two-thirds the maximum exposure before any mitigation.
The standard maxima under paragraph 4
Paragraph 4 of Schedule 24 sets the maximum penalty as a percentage of the "potential lost revenue" (the tax that should have been assessed but was not). The table is set out in the statute directly, with separate columns for the three territory categories defined in paragraph 4A.
| Behaviour | Category 1 max | Category 2 max | Category 3 max |
|---|---|---|---|
| Careless | 30% | 45% | 60% |
| Deliberate but not concealed | 70% | 105% | 140% |
| Deliberate and concealed | 100% | 150% | 200% |
Two points on this table that landlords commonly misread. First, the percentages are of the lost tax, not of the rental income. A careless under-declaration of £40,000 in rental income for a higher-rate landlord produces a tax loss of roughly £16,000 (40 per cent of £40,000), and the maximum careless penalty is 30 per cent of that £16,000, namely £4,800, not 30 per cent of the rental income itself. Second, the Category 2 and 3 columns are not multipliers applied at HMRC's discretion. They are statutory maxima triggered automatically when the inaccuracy relates to offshore matters in a Category 2 or 3 territory, regardless of behaviour.
Worked example 1 (UK careless). A landlord with five UK buy-to-lets misclassifies a £30,000 new bathroom installation as a deductible repair when it is in fact a capital improvement. The mistake is genuine, the receipts are all on file, and the landlord discloses to HMRC after an opening enquiry letter. Tax loss is £12,000 (40 per cent of the disallowed £30,000 capital expenditure). Maximum careless penalty: 30 per cent of £12,000, namely £3,600. With prompted disclosure mitigation (see below) the floor is 15 per cent of £12,000, namely £1,800. The eventual penalty almost always lands within this 15-30 per cent range and is rarely at the maximum.
Mitigation floors under paragraph 10
The maxima above are starting points. Paragraph 10 of Schedule 24 requires HMRC to reduce the penalty below the maximum based on the quality of disclosure, and sets minimum percentages below which the reduction cannot go. The minima depend on whether disclosure is unprompted (the landlord came forward without reason to think HMRC was about to find out) or prompted (anything else, including disclosure after a nudge letter or opened enquiry).
| Standard percentage | Unprompted floor | Prompted floor |
|---|---|---|
| 30% | 0% | 15% |
| 70% | 20% | 35% |
| 100% | 30% | 50% |
The offshore Category 2 and Category 3 maxima are reduced proportionately on the same disclosure principles. A Category 3 deliberate-concealed maximum of 200 per cent can be reduced to 60 per cent on unprompted disclosure or 100 per cent on prompted disclosure.
Two operational points landlords frequently get wrong. First, Schedule 24 does not impose a within-12-months cliff on the 0 per cent careless-unprompted floor. That cliff exists in Schedule 41 FA 2008 (failure-to-notify), where unprompted disclosure of a non-deliberate failure must be made within 12 months of when liability arose to access the 0 per cent floor, otherwise the floor is 10 per cent. Schedule 24 is structurally different: the 0 per cent careless-unprompted floor is available regardless of how long after the inaccuracy the disclosure is made, subject to quality of disclosure. Sessions writing on inaccuracy penalties should not import the Schedule 41 12-month qualifier into Schedule 24 commentary, and landlords should not assume their right to the 0 per cent floor has expired purely because of time elapsed.
Second, "quality of disclosure" is a discretionary HMRC judgement under three heads: telling (admitting the inaccuracy), helping (explaining how it arose and providing the supporting evidence), and giving access (allowing HMRC to verify). HMRC's Compliance Handbook at CH82420 onwards sets out the criteria. A landlord who tells HMRC the headline figure but withholds the underlying ledgers and asks for HMRC to "trust the disclosure" is not making a high-quality disclosure, and the reduction below the maximum will be modest.
Worked example 2 (prompted Cat 1 offshore disclosure). A higher-rate landlord owns a Spanish holiday let generating €30,000 a year of net rental income, equivalent to roughly £25,000 sterling. The income was deliberately omitted from UK returns for three tax years. HMRC opens an enquiry following a CRS data match from the Spanish tax authority. The landlord discloses fully and provides three years of Spanish income returns, bank statements and tenancy agreements. Spain is a Category 1 territory (full information exchange via CRS plus comprehensive double-tax treaty), so the Category 2 and 3 uplifts do not apply. Tax loss is £30,000 across three years. Maximum deliberate-not-concealed penalty: 70 per cent of £30,000, namely £21,000. Prompted disclosure floor: 35 per cent of £30,000, namely £10,500. The negotiated penalty is likely to land between these two figures depending on how well the landlord co-operates.
The offshore uplift under paragraph 4A
Paragraph 4A of Schedule 24 was inserted by Finance Act 2010 and substantially amended by Finance Act 2015 (in force 1 April 2016). It defines three territory categories and sets the higher maxima for Category 2 and 3 matters. Paragraph 4A applies only to income tax, capital gains tax and inheritance tax inaccuracies. Corporation tax and VAT inaccuracies do not attract the offshore uplift even where the underlying assets are offshore.
Category 1 territories
Territories with full information exchange with the UK. This covers all EU member states (post-Brexit, via the Common Reporting Standard and bilateral arrangements), the United States (FATCA reciprocity), Canada, Australia, New Zealand, Japan, and most major economies. For practical purposes, Spanish, French, Italian, Portuguese, German and Irish property positions for UK-resident landlords are Category 1, and the standard 30 / 70 / 100 per cent maxima apply.
Category 2 territories
Territories with partial information exchange. The list is dynamic and published by HMRC in the underlying offshore-categories Order. Sessions and landlord-clients should verify the current list at HMRC's published guidance before relying on the categorisation. Where the inaccuracy relates to property income or gains in a Category 2 territory, the maxima are 45 per cent / 105 per cent / 150 per cent across the three behaviour bands.
Category 3 territories
Territories with no effective information exchange. The current list is shorter and tends to feature jurisdictions that have either declined to sign onto the CRS framework or have no comprehensive tax-information agreement with the UK. Where the inaccuracy relates to property income or gains in a Category 3 territory, the maxima are 60 per cent / 140 per cent / 200 per cent.
Worked example 3 (Category 3 deliberate-concealed). A landlord owns rental property held through an opaque corporate structure in a jurisdiction that does not exchange tax information with the UK. The income has been omitted from UK returns for ten years, the structure is designed to disguise ownership, and the landlord has used false invoices to extract funds. HMRC discovers the structure through a third-party investigation. Tax loss is £200,000. Behaviour band: deliberate and concealed in a Category 3 territory. Maximum penalty: 200 per cent of £200,000, namely £400,000. Prompted disclosure floor: 100 per cent of £200,000, namely £200,000. The landlord faces a penalty of between £200,000 and £400,000 plus the £200,000 of underlying tax plus interest plus, in this profile of case, very likely a Code of Practice 9 contractual disclosure offer (covered separately under the CoP9 / CDF route).
Schedule 21 FA 2015: the asset-move uplift
Schedule 21 of the Finance Act 2015 imposes a separate, additional penalty on top of any Schedule 24 (or Schedule 41) penalty where assets have been moved from a specified territory (Category 2 or 3) to a non-specified territory, and the main purpose (or one of the main purposes) of the move was to prevent or delay HMRC discovery. The penalty equals 50 per cent of the underlying Schedule 24 penalty (paragraph 6(1) of Schedule 21).
Schedule 21 took effect on 26 March 2015, the date of Royal Assent to Finance Act 2015. It applies only to asset moves occurring after that date. Moves before 26 March 2015 attract only the underlying Schedule 24 penalty, not the asset-move uplift.
The mechanic is straightforward in principle but operationally significant: a £200,000 Schedule 24 penalty in a Category 3 deliberate-concealed case carries an additional £100,000 Schedule 21 asset-move penalty if the relevant assets were moved post-26 March 2015 to defeat HMRC discovery. The combined exposure on a £200,000 tax loss can therefore reach £300,000 in penalty alone, plus the underlying tax, plus interest.
Landlords with historic offshore structures should treat Schedule 21 as a separate diligence question alongside Schedule 24. The questions to ask: have any assets moved between offshore jurisdictions since 26 March 2015? What was the documented commercial rationale at the time? Where is the contemporaneous evidence of that rationale?
Want this checked against your specific situation?
Drop your email and a one-line summary. We reply within 24 hours, no phone call needed.
Suspension of careless penalties under paragraph 14
Paragraph 14 of Schedule 24 permits HMRC to suspend all or part of a careless inaccuracy penalty for a period not exceeding two years. The mechanic is HMRC discretion plus written notice, subject to FTT appeal. Three operational points.
First, suspension is available only for careless inaccuracies. Deliberate-but-not-concealed and deliberate-and-concealed penalties cannot be suspended under paragraph 14, regardless of how co-operative the landlord is or how high the quality of disclosure. This is one of the practical reasons landlords work to argue band classification down to careless wherever the evidence permits.
Second, HMRC must set at least one specific suspension condition that would help the landlord avoid becoming liable to a further careless inaccuracy penalty (per HMRC's Compliance Handbook at CH83110). Common specific conditions include: implementing dedicated landlord accounting software for the rental business, engaging a qualified accountant to review the year-end position, or instituting a quarterly bookkeeping discipline ahead of MTD for ITSA. There is also a generic condition that the landlord file all returns on time during the suspension period.
Third, failure to comply with the suspension conditions triggers the suspended penalty becoming payable in full at the end of the suspension period. Becoming liable to a further careless inaccuracy penalty during the suspension also triggers the suspended penalty.
HMRC's decision not to suspend, and any conditions HMRC chooses to impose, are appealable to the First-tier Tribunal. The Tribunal will consider whether the conditions are linked to avoiding future carelessness and whether they are realistically achievable. Conditions that do not pass these tests are vulnerable on appeal.
Appeal route and timing discipline
Appeals against a Schedule 24 penalty assessment go to the First-tier Tribunal (Tax Chamber) under the Tribunals, Courts and Enforcement Act 2007 and the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273). The notice of appeal must be made within 30 days of the penalty assessment under TMA 1970 section 31A. This is not 60 days, despite a persistent commentary error in landlord-facing sources. The 30-day clock starts on the date of the penalty assessment notice, not on the date the landlord receives it (subject to limited postal-receipt arguments).
Late appeals require an application under the framework set out in Martland v HMRC [2018] UKUT 178 (covered separately under the reasonable-excuse and late-appeal pages). The framework is materially stricter than HMRC's pre-Martland practice, and landlords missing the 30-day window face a real risk that a late appeal will be refused regardless of the merits.
HMRC's alternative dispute resolution service (ADR) runs alongside the FTT route. ADR engagement does not pause the 30-day appeal clock, so landlords using ADR should lodge a protective notice of appeal in parallel.
How Schedule 24 sits alongside other landlord penalty regimes
Landlords frequently face penalty exposure under more than one statutory regime on the same facts. The five most common are:
- Schedule 24 FA 2007 (inaccuracy in returns and documents). This page.
- Schedule 41 FA 2008 (failure to notify chargeability). Bites where a landlord never registered for self-assessment despite having rental income, under TMA 1970 section 7. Standard maxima 30 / 70 / 100 per cent of potential lost revenue, with a within-12-months 0 per cent floor for non-deliberate unprompted disclosure that does not feature in Schedule 24. See our coverage of penalties for not declaring rental income.
- Schedule 55 FA 2009 (late filing). £100 fixed penalty, daily £10 charges, 5 per cent / £300 milestone penalties. See our coverage of HMRC penalties for late landlord tax returns.
- Schedule 56 FA 2009 (late payment). 5 per cent surcharges at 30 days, 6 months and 12 months past payment deadline.
- Schedule 18 FA 2017 (Failure to Correct, the offshore disclosure regime with a 30 September 2018 deadline and post-deadline 200 per cent / 100 per cent penalty bands). Relevant only to offshore landlord disclosures that should have been made by 30 September 2018.
On the same facts, these regimes do not double-count on the same tax loss. A landlord who never registered (Schedule 41) cannot then face an additional Schedule 24 penalty on the same year's omitted rental income. But a landlord who registered, then filed inaccurately for some years and was completely unregistered for earlier years, can face Schedule 41 on the earlier unregistered years and Schedule 24 on the later filed-but-wrong years. The two regimes do address different statutory failures, and HMRC will pursue the appropriate regime for each year on its facts.
Practical playbook for a Schedule 24 penalty proposal
When a Schedule 24 penalty proposal arrives, the framework for response is:
- Within the first 7 days. Establish whether the band HMRC has proposed is defensible on the evidence. Most arguable cases sit on the careless-vs-deliberate boundary, and the evidentiary burden is on HMRC to demonstrate subjective knowledge for the deliberate band.
- Within the first 14 days. Assess whether the disclosure that has been made (or is about to be made) qualifies as unprompted. The cliff between unprompted and prompted is 15 percentage points on careless, 15 on deliberate-not-concealed, and 20 on deliberate-concealed. Unprompted status is sometimes worth contesting where HMRC has issued a nudge letter but not yet opened a formal enquiry.
- Within the first 21 days. Map the quality-of-disclosure position (telling, helping, giving access) and assemble the supporting evidence. Higher quality moves the eventual penalty closer to the floor; lower quality holds it near the maximum.
- Within the 30-day appeal window. Lodge a protective notice of appeal even if a negotiated agreement looks likely, to preserve FTT rights. Use ADR in parallel where useful.
- Where the band is careless. Develop a suspension proposal under paragraph 14, with specific conditions tied causally to the carelessness pattern. A suspended penalty is a zero penalty if the conditions are met.
The biggest gains in landlord penalty cases are in band classification (the difference between 30 per cent and 70 per cent), then in unprompted-vs-prompted positioning (15 percentage points), then in quality-of-disclosure narrative, then in suspension for careless cases. Schedule 21 asset-move stacking and the offshore Category 2 / 3 uplifts are operational facts that need to be factored in, not arguments that can be negotiated down.
If you are facing a Schedule 24 penalty proposal, the evidence and timing windows above are where the work happens. The form at the foot of the page is the route to a structured response.