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HMRC internal manual

Compliance Handbook

How to do a compliance check: partial closure notices

When to issue a PCN

Looking at the customer’s overall tax position

Calculating the tax due

Approval to issue a PCN

Preparing the approval form PCN101

Issuing a PCN

Appeals against a PCN

Penalties

Issuing an FCN

The Finance (No.2) Act 2017 made changes to the legislation relating to the completion of compliance checks that were:

  • already open at 17 November 2017, or
  • opened on or after that date.

and were opened under:

  • section 9A of the Taxes Management Act 1970 (TMA 1970) - for individuals or trusts
  • section 12AC of the TMA 1970 - for partnerships
  • paragraph 24 of Schedule 18 to the Finance Act 1998 - for companies.

The changes allow us to complete one or more of the matters we are checking before we complete the check itself. We do this by issuing a partial closure notice (PCN) for the matter(s) we have finished checking.

We can only consider issuing a PCN if, after doing so, there is still going to be at least one open matter for the return we are checking.

Although a PCN completes one or more matter(s), the compliance check will remain open until we have completed all matters. Once we have finished checking all matters, we should issue a final closure notice (FCN) - unless we are completing the check by contract settlement.

When to issue a PCN {#}

HMRC’s policy on issuing PCNs is that we should use them selectively, and not routinely, especially if there is the likelihood of an appeal.

Customer agrees with our view about the matter(s)

If we have the customer’s agreement to our view about the matter(s), we can complete the matter(s) by issuing a PCN.

Customer does not agree with our view about the matter(s)

If we do not have the customer’s agreement to our view about the matter(s), we should only issue a PCN if one of the following applies:

  • we have been given a direction by the tribunal
  • the compliance check involves one or more of the following:
    • tax avoidance
    • multiple complex issues
  • the matter(s) to be completed by the PCN involves a large amount of tax at risk - (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Customer wants us to complete one or more matters using a PCN

If the customer wants us to complete one or more matters using a PCN but we disagree, the customer may apply to the tribunal for a direction requiring us to issue a PCN. See EM2163

If the tribunal directs us to issue a PCN, follow the guidance at EM1990

Looking at the customer’s overall tax position {#}

To help you establish whether it is appropriate to issue a PCN or FCN, you will need a good understanding of the customer’s overall tax position for the year or period we are checking. You may need to liaise with other relevant parts of HMRC. If you do, you must evidence this in the compliance check records. You may need to consider one or more of the following:

Partnerships and partners

Entries in the personal Self Assessment return that relate to the partnership may be being checked under either:

  • section 9A of the TMA 1970 - in which case it is a ‘matter’ for the check of the personal Self Assessment return, or
  • section 12AC of the TMA 1970 (through a check into the Partnership Tax Return) - in which case it is not a ‘matter’ for a check of the personal Self Assessment return.

Before issuing a PCN or FCN for a partner’s personal Self Assessment return, you should consider whether any other matters relating to that return are being checked under section 12AC. If they are, you must obtain agreement from the caseworker carrying out the check into the Partnership Tax Return before you issue a PCN or FCN. There may be reasons why that caseworker does not want you to issue one at that time.

If you are in a position to complete one or more matters that you are checking under section 9A, and the only remaining open matter(s) for the return you are checking is being checked under section 12AC, it is not appropriate to issue a PCN. Instead, you should issue an FCN to complete your section 9A check – provided the caseworker carrying out the check under section 12AC has agreed.

Claims outside a return

When considering the customer’s overall tax position you should establish whether there is a compliance check of a claim outside the return – for example, a stand-alone loss relief claim. If there is, you will need to take that into account when deciding whether or not to issue a PCN or FCN.

Tax avoidance cases

If your case involves tax avoidance, before issuing a PCN or FCN you should contact the Technical Lead for all avoidance schemes used in the year or period of the return you’re checking. You need to do this whether or not the matter(s) you want to complete relates to any of those schemes.

Calculating the tax due {#}

The amount due for a PCN is the additional tax due after amending the return for the matter(s) you are completing by that PCN. You will need to consider the effects of any previous PCNs or contract settlements for the year or period you are checking.

When calculating the amount due, do not take into account the possible outcome of any other matter(s) we are still checking – this will be dealt with in any future PCNs or the FCN.

Approval to issue a PCN {#}

Before issuing a PCN you must obtain the approval of an independent approving officer - unless the tribunal has directed us to issue one. There is additional guidance for approving officers, see CH279610

Requests for approval to issue a PCN must be made using form PCN101, ‘Approval for issue of partial closure notice’, which is in SEES. You should email the form, along with ‘before and after’ tax calculations, to the relevant approving officer. They will let you know whether you can issue a PCN.

Once you have received approval to issue a PCN, you should follow the guidance at EM2160+

Preparing the approval form PCN101 {#}

When preparing form PCN101, you must ensure that your description of the matter(s) you are proposing to complete by issuing a PCN is concise, clear and specific. This is because:

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

When describing the matter(s), do not include your conclusions or any tax calculations. You will include these separately in the PCN but they should not form part of the description of the matter(s).

Issuing a PCN {#}

You should use the appropriate version of the PCN for your type of case.

Appeals against a PCN {#}

Customers have the same appeal rights against a PCN as they do against an FCN. The normal procedures for appeals and postponements apply. See ARTG2210+

For cases involving tax avoidance, and where a follower notice and/or an accelerated payment notice has been issued for the matter(s) being completed, there are different rules about appeals and postponements. These are explained to the customer in the PCN and FCN.

If no appeal is made against a PCN within the 30-day time limit, we can only make changes to a matter that has been completed by that PCN if we have made a discovery for that matter. See EM3250+

Penalties {#Penalties}

Where the PCN corrects an error or inaccuracy in a return, we may charge the appropriate penalty.

For 2007-2008 and earlier years, penalties for an incorrect return are charged under:

  • section 95 of the TMA 1970 - for individuals
  • section 95A of the TMA 1970 - for partnerships
  • paragraph 89 of Schedule 18 to the Finace Act 1998 - for companies.

For 2008-2009 and later years, penalties for an inaccurate return are charged under Schedule 24 to the Finance Act 2007.

For guidance on the calculation of penalties for a matter(s) completed by a PCN, see EM2165

Issuing an FCN {#}

Once you have finished checking all matters included in your compliance check, you should issue an FCN - unless we are completing the case by contract settlement.

You should follow the normal authorisation process for completing cases in your business area.

In compliance check cases for Company Tax Returns under paragraph 24 of Schedule 18 to the Finance Act 1998, the FCN will be issued by the COTAX system.