CH403321 - Charging penalties: calculating penalties: adjustment of a failure to file penalty for an amount charged automatically: deduction of the 12 month penalty charged by SA or CIS

When you charge a penalty for a failure to file a return within 12 months and deliberate withholding of information you are, in effect, increasing the penalty that was previously assessed automatically at £300 or 5% of the tax liability, see CH401222.

You need to adjust your penalty calculation to deduct the 5% automatic penalty assessments that are issued when any of the following happen

• a return is 12 months late
• a determination is made
• the return is filed
• the return is amended
• a discovery assessment is made.

The National Penalty Processing System (NPPS) does not automatically reduce the penalty by 5% of the potential lost revenue (PLR). You need to make the adjustment in NPPS following the guidance in CH407720. This will then be shown on the Penalty Explanation Letter. 

Note: If at the end of your compliance check you amend an SA return, raise a discovery assessment or make a CIS determination, you need to wait 10 days before you raise an NPPS2. This is to allow time for the further automatic penalty assessment to be issued. The NPPS2 must be dated later than the automatic penalty assessment.

Note: If you settle by contract, you must make sure that you deduct only the actual amount of the penalty that was assessed automatically by SA or CIS and not the amount shown in NPPS. The amount in NPPS is calculated on the assumption that the tax due will be entered into the system, generating an automatic further 5% penalty assessment. 

Example

Jacob’s 2010-11 self assessment return, due to be filed by 31 January 2012, has not been filed.

You have third party information about a Capital Gains Tax (CGT) liability of £20,000 in the return period.

On 1 March 2013 you make a determination based on the previous year’s liability of £10,000.

On 1 May 2013 you start a compliance check to establish if Jacob has deliberately withheld information about his CGT liability. Jacob files the return on 30 May 2013. The tax liability is £30,000.

You establish that Jacob deliberately withheld information and the failure to file penalty is 50%.

Automatic 12 month tax-geared failure to file penalties are assessed as follows:

Date	Reason for assessment	Calculation	Amount
1 February 2013	Minimum penalty assessed in absence of return	-	£300
1 March 2013	Further penalty assessed based on tax charged by determination	£10,000 @ 5% = £500 minus £300 already charged	£200
30 May 2013	Further penalty assessed based on liability in return	£30,000 @ 5% = £1,500 minus £500 already charged	£1,000

The further penalty is calculated as follows:

Calculation	Amount
12 month failure to file penalty £30,000 @ 50%	£15,000
Amount previously assessed	£1,500
Further penalty assessment	£13,500