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HMRC internal manual

Compliance Handbook

How to do a compliance check: charging tax and penalties: Overview

Where penalties are payable in direct tax cases, you may need to decide whether to conclude your compliance check by contract settlement or by making formal assessments, see CH411050.

In all cases across all taxes, you should always try to obtain the person’s agreement to the additional tax and any penalties that are payable before you amend or assess tax and assess penalties, see CH279000.

You must issue tax assessments within the relevant time limits for that particular tax.

If both tax and penalties are payable, you should normally issue both the tax assessment and any penalty assessment at or around the same time so that the person can appeal both to tribunal at the same time. Your penalty decisions must be authorised and notified to the person using an NPPS100 explanation letter before you can send the penalty assessment. Combine the penalty explanation with a tax explanation/pre-assessment letter if possible and enclose the NPPS100 Penalty Explanation Schedule.

Guidance on charging penalties is at CH400000.

When it’s not possible to issue the penalty assessment at the same time as the tax assessment you must write to the person to tell them that you are considering penalties, but you have not yet established whether any penalties are payable or what the correct level of any penalties will be. If you need additional information you should explain what information you need. If you cannot make a decision for any other reason you should explain why.

Take immediate action to obtain any additional information that you need to establish the behaviour, see CH402000.