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HMRC internal manual

Compliance Handbook

Penalties for inaccuracies: how to process the penalty: penalty assessments

You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.

Once we have established that a person is liable to a penalty for an inaccuracy or under-assessment we will normally assess the penalty. Alternatively in direct tax cases, the person can make us an offer to settle the tax, interest and penalties by contract settlement, see CH411050.

This person may be

  • the person who gave us the inaccurate document and / or
  • the person who deliberately caused the inaccuracy in another person’s document, see CH81075.

The penalty assessment is enforceable in the same way as an assessment ‘to tax’. This means that the rules that apply to the tax or duty that the penalty relates to also apply the penalty assessment. So for Inheritance Tax, for example, the penalty assessment is enforceable in the same way as a notice of determination.

Before you assess a penalty or penalties you must decide

  • the amount of the penalty or penalties, see CH82510
  • which tax period the penalty or penalties relates to, see CH81030.

When you assess a penalty or penalties you must

  • notify the person about the penalty or penalties you are assessing in a penalty notice (NPPS2), and
  • state in the notice the specific tax period in respect of which the penalty or penalties are being assessed.

The penalty notice will tell the person what they owe, when they must pay it and their appeal rights.

Although more than one penalty can be included in a notice, you must include a separate entry in the notice in relation to each inaccurate document and for each separate period, see CH83030. Where there is more than one inaccuracy penalty arising from a document you must include these separately in the penalty explanation letter (NPPS100) unless those penalties can be grouped in accordance with CH82200. However, penalties relating to different documents must not be grouped in any circumstances.

For example, during a compliance check you establish that a person is liable to a deliberate inaccuracy penalty for inaccuracies in two separate self assessment returns covering the two consecutive return periods ended 5 April 2016 and 5 April 2017. In addition there is a careless inaccuracy in the later return. In these circumstances you must include a separate entry in the NPPS100 for each of the three penalty assessments. This is because the deliberate behaviour relates to two different documents and there are two different behaviours in the later document. There will be two entries on the notice of penalty assessment (NPPS2) - one for each period, with the two different behavioural penalties for the same period combined into a single entry.

If you intend to include the penalty in a contract settlement you will still need to tell the person how much the penalty is but the contract will stand in place of the assessment. You will find guidance on contract settlements at EM6000 for direct taxes and IHTM36221 for Inheritance Tax.

FA07/SCH/PARA13 (2) & (7)