Charging penalties: introduction: overview
This operational guidance takes caseworkers, their managers and authorising officers through the decisions and actions required in order to charge penalties under
- Schedule 24 of the Finance Act 2007 - Penalties for inaccuracies in returns and documents
- Schedule 41 of the Finance Act 2008 - Penalties: failure to notify and VAT and excise wrongdoing
- Schedule 55 of the Finance Act 2009 - Penalty for failure to file returns on time.
These pieces of legislation set out a penalty framework that takes into account a person’s behaviour at the time they did something wrong and if, how and when they disclose this to HMRC.
You must obtain and record evidence of the person’s behaviour on the PDAC in order to establish the penalty position in all compliance cases where there is
- a failure to notify a relevant obligation, see CH70000
- an inaccuracy in a return or other document, see CH80000
- a failure to file that continues for 12 months after the filing date and involves withheld information, see CH60000
- VAT or excise wrongdoings, see CH90000.
Behaviour is the action the person took, or didn’t take, that resulted in their tax affairs being wrong, see CH402050.
FA07/Sch24 also includes a penalty for failure to notify HMRC within 30 days of an under-assessment of tax. This penalty is not determined by behaviour and is set at a maximum of 30%, see CH81170, which may be reduced to nil if a full unprompted disclosure is given. In cases where it can be established that the failure to file VAT returns was fraudulent, a higher penalty should be charged under Section 60 of the VAT Act 1994, see CH401125.
For information on the available reductions for disclosure, see CH403200.
Where there is a penalty payable, you must complete NPPS, see CH407500. This includes those cases where the penalty is included in a contract settlement.
There is no penalty payable where
- an inaccuracy was as the result of a mistake despite taking reasonable care, see CH81120
there is a reasonable excuse for
- a failure to notify, see CH71500
- a failure to file on time, see CH61500
- a VAT or excise wrongdoing, see CH92000.
However decisions in these cases must still be authorised, see CH407000.
If the person has mentioned any disability you must
- consider whether the failure was affected by their disability and if so,
- take this into account when deciding on the penalty behaviours.
You must make sure that the person is not disadvantaged by their disability, see COG11370.
This guidance will help you to understand what action you need to take to
- ensure the person’s human rights are protected, see CH300000
- get authorisation for your penalty decisions, see CH407000
- record and calculate penalties on the National Penalties Processing System, see CH407500
- record decisions not to charge penalties, see CH407620
- suspend penalties, where appropriate, see CH405000
- to consider a special reduction, where appropriate, see CH403250.