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HMRC internal manual

Compliance Handbook

Special reduction: Overview

Some of the statutory penalty provisions introduced in Finance Act 2007 and subsequent Finance Acts give HMRC discretion to reduce penalties if we think it is right because of special circumstances. This is called special reduction.

Before considering special reduction

Before you consider special reduction, you should look at any other factors that might mean there should be no penalty or that might reduce the amount of a penalty. For example, you should consider

  • whether there is a reasonable excuse for a failure, or
  • whether an inaccuracy was made despite taking reasonable care, and
  • whether any disclosure is unprompted or prompted,
  • where appropriate, what amount of reduction for disclosure is appropriate
  • where there is liability to an inaccuracy penalty under FA07/SCH24, whether a lesser penalty is due because the careless inaccuracy resulted in delayed tax.

What is a special reduction?

Making a special reduction of a penalty includes

  • staying a penalty, and
  • agreeing a compromise in relation to proceedings for a penalty.

Staying a penalty means stopping or postponing enforcement of a penalty. Agreeing a compromise allows us to forego all or part of a penalty.

To make a special reduction there must be special circumstances

We may use special reduction to reduce a penalty below the minimum otherwise allowed in law because of ‘special circumstances’. Special circumstances are either

  • uncommon or exceptional or
  • where the strict application of the penalty law produces a result that is contrary to the clear compliance intention of that penalty law.

You must consider whether there are special circumstances when

  • a person appeals against an automated penalty, or
  • you are considering assessing a fixed or tax geared penalty.

You will not normally need to consider again relevant facts that you considered as part of any other reduction of the penalty. But you may need to consider other relevant facts. You must not consider any facts that are irrelevant.

Authority from TALA required

You may refuse to make a special reduction but if you think a special reduction may be appropriate, or if you have refused to make a special reduction and the person challenges that refusal, you must refer to Tax Administration, Litigation and Advice (TALA). You must not give a special reduction without authority from TALA to do so.