Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Compliance Handbook

From
HM Revenue & Customs
Updated
, see all updates

Charging Penalties: establishing penalty behaviour: introduction

Whenever you find

  • a failure to notify, see CH71220 
  • an inaccuracy, see CH81010 
  • a failure to file that continues for 12 months after the filing date, see CH60000 
  • a VAT or excise wrongdoing, see CH91200 

you must establish the behaviour that led to it in order to enable a decision to be made about whether or not a penalty is payable and, if so, the degree of culpability which determines the amount of the penalty.

Culpability means the degree to which a person is to blame for an inaccuracy, failure to notify, wrongdoing or withholding of information.

Culpable behaviour that incurs a penalty is

Under FA07/Sch24

  • careless action that results in an inaccuracy
  • deliberate action that results in an inaccuracy, and
  • deliberate and concealed action that results in an inaccuracy.

Under FA08/Sch41

  • non-deliberate failure to notify or VAT or excise wrongdoing,
  • deliberate failure to notify or VAT or excise wrongdoing, and
  • deliberate and concealed failure to notify or VAT or excise wrongdoing.

Under FA09/Sch55

Where a person fails to file a return or other document and information is

  • not deliberately withheld
  • deliberately withheld but not concealed
  • deliberately withheld and concealed.

Non-culpable behaviour which does not result in liability to a penalty under FA07/Sch24 is a mistake despite taking reasonable care.

Non-culpable behaviour which does not result in liability to a penalty under FA08/Sch41 is a non-deliberate failure to notify or VAT or excise wrongdoing when the person has a reasonable excuse.

You must gather sufficient evidence to support your view of behaviour. This can be done in a number of ways according to the type of compliance check and the level of cooperation received.

Before asking about or discussing how an inaccuracy, failure to notify, wrongdoing or withholding of information occurred, you must make the person aware of their human rights and also explain about penalties and reductions for disclosure, see CH402350. 

However, you should not explain human rights, penalties and reductions for disclosure if the inaccuracy can be identified as an obvious mistake despite taking reasonable care without the need to request any further information from the taxpayer or agent.  An example of this might be a single, minor transposition of a figure.

You need to record and present sound evidence and reasons for your findings, see CH402550.

It is important that you establish penalty behaviour in all cases.

Increased penalties must be applied for deliberate behaviour and the more serious cases should be referred for consideration of criminal proceedings where appropriate. Where there is an inaccuracy, careless behaviour should not be ignored - it should be rectified through the deterrence of a penalty, although the penalty may be suspended if accounting systems and procedures can be improved to avoid future inaccuracies, see CH405000.

Where you suspect that a tax agent has engaged in dishonest conduct see technical guidance starting at CH180000 and operational guidance starting at CH880000. Where you identify other types of poor agent behaviour see CH800000.