Jurisdiction(s):
United Kingdom

Key definition

Penalty definition

What does Penalty mean? In contract practice, a penalty (or penalty clause) is a term that, on breach, requires the defaulting party to pay money or suffer another detriment aimed at deterring non‑performance rather than providing a proportionate, pre‑agreed remedy. Across England & Wales, Scotland and Northern Ireland, the penalty rule is case law (not statutory), developed in Dunlop and refined in Cavendish v Makdessi/ParkingEye. A clause is penal and unenforceable if it imposes a detriment out of all proportion to the innocent party’s legitimate interest in performance or enforcement. The assessment is one of substance, not label, and is not limited to payments: forfeiture...

HMRC behavioural penalties for inaccuracies: PLR-based rates, disclosure reductions, offshore categories, and case law on reasonable care, careless, deliberate and concealed conduct, with 2025 behavioural penalty reform context

Published by a LexisNexis Tax expert

Practice notes

FORTHCOMING CHANGE relating to penalty reform calls for evidence and behavioural penalties reform

At Budget 2025, the government released a summary of responses to the consultation launched at Spring Statement 2025 on reforming behavioural penalties, and confirmed its intention to proceed with proposals to revise penalties for inaccuracies in tax returns and for failures to notify chargeability.

This consultation was preceded by two calls for evidence:

an initial call for evidence on ‘The Tax Administration Framework: Supporting a 21st Century tax system’ on 23 March 2021, with a summary of responses on 30 November 2021; and
a second call for evidence on ‘The Tax Administration Framework Review–enquiry and assessment powers, penalties, safeguards’, on 15 February 2024, followed by a summary of responses on 30 October 2024—this second call set out potential options for penalty reform, including changes to penalty suspension and escalation for continued or repeated non-compliance.

The consultation outcome published at Budget 2025 confirms the government’s plan to develop draft legislation to reform the existing behavioural penalties, rather than adopting a completely new legislative framework...

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Web page updated on 26/05/2026

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