Penalties for Failure to File on Time: Calculating the penalty: Calculation process: Overview
This chapter provides guidance on how to calculate fixed penalties, daily penalties and tax-geared penalties.
- occasional returns and returns for periods of 6 months or more, see CH62100
- CIS returns, see CH62340, and
- returns for periods between 2 and 6 months, see CH62720,
the person becomes liable to an initial fixed penalty of £100 when the return is not filed by the filing date.
In addition to incurring the initial fixed penalty,
- a second fixed penalty of £200 is incurred for CIS returns, 2 months after the penalty date, see CH62360, and
- subsequent fixed penalties of £200, £300 or £400 in respect of returns or between 2 and 6 months for further failures within a penalty period, see CH62720.
For occasional returns and returns for periods of 6 months or more, see CH62120, daily penalties of £10 per day can be charged after 3 months from the penalty date. Although £10 is charged each day, the total of the daily charges make up one penalty. The final daily penalties charge is for the lesser of
- the number of days from when the daily penalties first start being charged up to and including the date on which the return is filed, and
- 90 days.
6 month further penalty
After 6 months a person is liable to a penalty of 5% of the amount of tax, or a minimum of £300. This penalty applies to
- occasional returns and returns for periods of 6 months or more, see CH62140
- CIS returns, see CH62380, and
- returns for periods between 2 and 6 months, see CH62730.
We cannot reduce this penalty for a disclosure.
12 month further penalty
Depending on the person’s behaviour that lead to the failure, after 12 months the tax-geared penalties are
- 100% of the liability that would have been shown in the return, where withholding information is considered deliberate and concealed,
- 70% of the liability that would have been shown in the return, where withholding information is considered deliberate but not concealed, or
- 5% of the liability that would have been shown in the return, in any other case.
Note that these penalty percentages may be increased if the information withheld involved an offshore matter and did not involve a CIS return, see CH62260+.
There are minimum penalties for the 12 month further penalty.
The minimum penalty is £300 for
For CIS returns the minimum penalty is
- £3,000 where withholding information is considered deliberate and concealed
- £1,500 where withholding information is considered deliberate but not concealed
- £300 where information was not deliberately withheld, see CH62480.
Note that after a return or other document is outstanding for 12 months, a person can demonstrate more than one behaviour regarding information in that return. The penalty is calculated using the highest penalty percentage that is applicable.
The person can receive a reduction to the 12 month 100% or 70% penalty if they make a disclosure, see CH63100+. But, we cannot reduce the 12 month 5% penalty for a disclosure. The process to calculate penalties where the person has made a disclosure is in CH63660.
Note that the penalty cannot be reduced below the minimum penalties set out at CH63200.
Below is the process for calculating the 12 month further penalty.
- Decide whether information has been withheld.
- Decide whether the information was deliberately withheld and if it was deliberately withheld, whether it was also concealed. This will tell you the percentage to use.
- Determine what category of information was deliberately withheld. This will tell you whether higher penalty percentages apply for an offshore matter.
Decide whether the person made a disclosure. If they made a disclosure, decide
- whether the disclosure was prompted or unprompted,
- the quality of the disclosure, and
- the penalty percentage between the minimum and maximum.
- Determine the tax liability of the return.
- Apply the percentage to the liability.
- Ensure that the result from the percentage penalty is larger than the minimum penalty.
The penalty may be reduced where the person has incurred another penalty that is calculated on the same liability to tax, see CH65060.