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HMRC internal manual

Compliance Handbook

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HM Revenue & Customs
Updated
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Charging penalties: establishing penalty behaviour: dealing with non-cooperation

You may have difficulty gathering the evidence you need to establish the penalty behaviour if a person

  • refuses to answer some or all of your questions, or
  • gives information that you believe to be false, or
  • does not cooperate with the compliance check at all.

In the circumstances of the third bullet above, you should follow the guidance at CH281000.

When the person refuses to answer our questions about penalties, you must consider whether we can obtain the details we need by using our information powers.

Although the law specifically allows you to use FA08/Sch36 powers to obtain evidence that will enable you to establish whether a penalty is due, see CH223000, it is unlikely that you will be able to use these powers in practice. This is because a person has the right under Article 6 of the Human Rights Act not to incriminate themselves by answering our questions about their behaviour, see CH300200. We cannot therefore use our powers to force a person to incriminate themselves, for example by asking them questions about why and how an inaccuracy occurred. There are no such restrictions however on the use of third party notices, because only the person can incriminate themselves.

This means that you can only use information powers to help establish the penalty position by asking for documents or information that already exist. For example, you can use information powers to request a person’s private bank statements and these may show that they have deposited untaxed business takings in their private account. Regular deposits from an unidentified source can be strong evidence of deliberate behaviour.

The information and documents that you use to establish the tax liability may also help to establish the penalty position and you will normally request these at the start of the check, or as the check progresses.

You can however still use information powers to obtain documents or information that already exists to check the penalty position after you have agreed the tax liability, even if you did not originally need them to check the tax liability. For example, you may have already established the tax position from a business economics exercise, but you need the private bank statements to establish whether the behaviour is deliberate.

If the person does not comply with the information notice you should issue a FA08/Sch36 penalty, see CH270000, although that may not be appropriate in missing trader cases.

For technical guidance about poor co-operation and information powers, see CH81195.

Once you have exhausted all reasonable attempts to get the information you need, you will need to come to a view on penalty behaviour, based on the evidence you have. Consider whether information from a third party would help, see CH402750.

If you can establish an inaccuracy, a failure to notify, a VAT or excise wrongdoing or that information has been deliberately withheld by failing to file a return, and you assess the tax, you must charge a penalty.

Refusing to cooperate with a compliance check is not itself evidence of deliberate behaviour. However, it may contribute to a case based on reasonable inference, see CH402705.

For an example of a case where the customer gives little cooperation with the compliance check, see CH402338.