CH405070 - Charging penalties: suspending penalties: suspension of penalties flowchart

This page and chapter are under review as the relevant content is also published in the guidance chapters of the Compliance Handbook, within Compliance checks factsheets and in Compliance checks guidance. If you use particular pages regularly, please email hmrcmanualsteam@hmrc.gov.uk to let us know the specific content you find useful.

The penalty suspension flowchart below will help you make the right decision in most cases. It does not replace the more detailed written guidance at CH83100+ and CH405000+.

The flowchart and detailed guidance reflect HMRC policy and take account of (but do not always follow) Tribunal decisions. Customers and agents may challenge your decision by citing a particular First-tier Tribunal (F-tT) judgment that appears to support another view.  You should still follow the HMRC policy and explain, if necessary that HMRC does not always agree with unbinding F-tT decisions and that your decision is in line with departmental policy.

Penalty suspension flowchart

Step 1: Is there a penalty for FTRC (Failure to Respond to Check)?

  • No - you cannot suspend the penalty 
  • Yes - go to step 2.

Step 2: Is it likely the person will comply with the conditions of suspension?

Factors suggesting they are unlikely to comply include CH83146 :

  • a deliberate inaccuracy for the same compliance check 

  • failure to fix problems identified during the compliance check for example:  

    • you should have pointed out recordkeeping problems at the time they were identified 

    • refusing to fix problems at the time they are identified suggests the person is unlikely to do so once the check has ended 

  • poor compliance history 

  • failure to have made a complete and timely disclosure of inaccuracies identified by the compliance check 

  • overdue returns and payments 

  • No → You should not suspend the penalty. 

  • Yes → go to Step 3.

Step 3: Is it likely that the underlying cause of the inaccuracy would, if not remedied, result in the same or a different careless inaccuracy in a future return? 

  • you can suspend the penalty only if compliance with a specific suspension condition would help avoid a future penalty for a careless inaccuracy 

  • examples:  

    • where in an ongoing business a faulty recordkeeping process is the underlying cause of a carelessly inaccurate ITSA return of trading profit, it will be relatively easy to conclude that correcting that fault would help the person to avoid a future careless inaccuracy, and you can suspend the penalty

    • however, if a careless inaccuracy was, and for the same reason, in that person’s final self assessment return following his retirement, so that he will no longer be required to make a self assessment return, there will be no condition that could be set to help him avoid a penalty for a careless inaccuracy in future, and you cannot suspend the penalty

  • No → You should not suspend the penalty

  • Yes → go to Step 4.

Step 4: Can you set at least one SMART condition of suspension? 

SMART conditions are at CH83153:

  • Specific – related to the business or individual 

  • Measurable – evidence can show the condition was met 

  • Achievable – within the person’s power to meet the condition 

  • Realistic – conditions cannot be unreasonable 

    •  for example, it would not be reasonable to require a small one-man business to employ a full-time bookkeeper 

  • Time-bound – there must be a clear date by which the conditions must be met

Note: It’s essential that any suspension condition is measurable. Ask yourself: if you return later, can the person show clear evidence they met the condition? For example, putting a recordkeeping process in place can be evidenced by showing the system exists. In contrast, a vague promise to “take more care” cannot be evidenced. 

  • No → You should not suspend the penalty 

  • Yes → You must suspend the penalty and decide the suspension period

Suspended period guidance 

  • the maximum suspension period is 2 years 

  • the period should be long enough to meet the SMART condition, but no longer 

  • if the underlying problem is already fixed and the condition is just to maintain improvement, a short period of a few months may be appropriate

  •  if the condition involves a major overhaul of business systems, possibly at significant cost, a longer suspension period may be needed  

  • do not extend the suspension period simply to include generic obligations like filing and payment