HMRC internal manual

Compliance Handbook

CH83110 - Penalties for inaccuracies: how to process the penalty: suspension of a penalty: introduction

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

The penalty provisions in Finance Act 2007 seek to influence behaviour by encouraging and supporting those who try to meet their obligations and penalising those who do not.

Paragraph 14 of Schedule 24 FA 2007 allows HMRC to suspend all or part of a penalty under Paragraph 1 of that Schedule (although our policy is to suspend all of the penalty in most cases - see CH83160). We have to assess the penalty or, for some taxes, include it in a contract settlement even though a decision has been made to suspend it.

We cannot suspend all penalties chargeable under Schedule 24. We can only suspend a penalty for a careless inaccuracy. Whenever we decide that a person is liable to a penalty for a careless inaccuracy we must consider whether we can suspend it.

In order to suspend a penalty for a careless inaccuracy, you must be able to set at least one specific suspension condition that would help a person to avoid becoming liable to a further careless inaccuracy under Paragraph 1. In addition to specific suspension conditions you must also set the generic condition that the person must file all their returns on time during the suspension period.

The decision to suspend a penalty is a discretionary matter for HMRC. This means that any decision we make must be reasonable in all the circumstances of the case. We should discuss suspension with the person and give them factsheet CC/FS10 (HMRC website).

If we do decide to suspend a penalty, we must also set a suspension period. This depends on the facts of the case but must not be longer than two years.

A person may appeal against our decision not to suspend a penalty. They may also appeal against any of the suspension conditions we set. The appeal may be settled by agreement or by review, or decided by the tribunal.

A suspended penalty will become payable if, during the period of suspension, the person becomes liable for a further penalty under Paragraph 1 for an inaccuracy in a return or document.

At the end of the suspension period

  • if the person satisfies us that the suspension conditions have been met, we cancel the penalty
  • if the person fails to satisfy us that the suspension conditions have been met, they must pay the penalty.