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HMRC internal manual

Compliance Handbook

From
HM Revenue & Customs
Updated
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Charging Penalties: establishing penalty behaviour: evaluating evidence: evidence of deliberate failure to file, inaccuracy, withholding of information or VAT or Excise wrongdoing

Deliberate behaviour is when a person knows that they are required to notify us about a relevant obligation, is able to do so, but does not do so.

You must ensure that your evidence is sufficiently strong, see CH402100.

Direct evidence of deliberate behaviour may be difficult to obtain but could include

  • evidence from a third party
  • an admission by the person
  • observations by HMRC officers.

In many cases you will not have any direct evidence and will have to use indirect evidence to prove the deliberate behaviour by making reasonable inferences based on the available facts.

You may be able to establish that the person knew (or could reasonably be expected to know) a document was inaccurate leading to an understatement of tax. If the person did nothing to correct the document, it can be inferred that this was deliberate behaviour. Examples of indirect evidence from which you may infer deliberate behaviour include:

For inaccuracies

  • The person has directly benefited as a result of the inaccuracy, for example, off record sales used to fund an extension to their home. It is important to try to establish where the takings omitted from returns have been saved or spent.
  • Other similar transactions are correctly recorded but one is not, for example takings recorded correctly for Monday to Friday but Saturday’s takings are not in the books.
  • Multiple inaccuracies that may suggest the behaviour goes beyond careless.
  • A significant inaccuracy that is extremely unlikely to have gone unnoticed as a careless error before the return was submitted.

Further guidance on and examples of deliberate behaviour are in the technical guidance at CH81100.

For failure to notify

  • The existence of a full set of business records, including a VAT account for the unnotified source.
  • A previous failure or failures to notify.
  • Multiple failures to notify found during your check - as more tax periods are found to require notification it becomes progressively less likely that every one could be a non-deliberate failure.
  • The scale of the failure to notify - the larger the loss of tax or duty, or receipt of income, the more likely it is that the person knew of the need to notify.

Further guidance on and examples of deliberate behaviour are in the technical guidance at CH72000.

For VAT and excise wrongdoing

  • There has been previous wrongdoing.
  • The business or its commercial practices are not credible.
  • The person has benefited as a result of the wrongdoing, for example by

    • selling goods cheaper than their competitors
    • making a larger profit than their competitors.

Further guidance on and examples of deliberate behaviour are in the technical guidance at CH93000.

For withholding information

  • A larger than usual tax liability.
  • There is evidence of cash flow problems - consider if the person has asked for time to pay or similar in relation to other liabilities.
  • The person should have known or asked for advice on the tax liability.
  • Advice was received that tax was payable.
  • There is no reasonable explanation for why the return wasn’t filed for over 12 months.
  • Non-tax reporting obligations have been met on time, for example, a company provided its returns to Companies House for the period in time.

Further guidance on and examples of deliberate behaviour are in the technical guidance at CH62200 and CH62400 (CIS returns).