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HMRC internal manual

Compliance Handbook

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HM Revenue & Customs
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Penalties for inaccuracies: how to process the penalty: suspension of a penalty: circumstances in which you might suspend a penalty: can you set suspension conditions

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

You must consider each case on its own facts. A careless inaccuracy will often, but not always, arise from a systemic failure or weakness in the person’s record-keeping system. So it is important to identify the underlying cause of the failure or weakness in the record keeping that caused the return to be inaccurate.

You can only suspend a penalty for a careless inaccuracy where you can set at least one specific suspension condition that, if met, would help the person avoid a further penalty for a careless inaccuracy.

The legislation requires HMRC to be able to identify any future careless inaccuracies that would result from the underlying cause if it is not corrected. It will generally be straightforward to establish whether the careless inaccuracy that you are penalising in this compliance check will recur in future returns if the specific suspension conditions are not put in place. So it will generally be straightforward to decide whether suspending the penalty would help the person to avoid a further penalty for the same careless inaccuracy.

Where the careless inaccuracy that you are penalising in this compliance check will not recur in future returns, the person may propose that specific suspension conditions could help him to avoid a different inaccuracy. So you will need to establish how likely it is that the underlying cause of the inaccuracy that you are penalising would result in that different inaccuracy in a future return. You should consider what careless inaccuracies would be included in the person’s future returns if the changes made by the specific suspension conditions are not implemented.

When considering the likelihood of a future event, you can not be certain what would happen. So you should only consider suspending a penalty for a careless inaccuracy if you are reasonably certain that the specific suspension conditions would help the person to avoid a penalty for a different careless inaccuracy. You must also suspend a penalty for a careless inaccuracy where you are instructed to do so by a reviewing officer, the tribunal or the courts, who should have identified at least one specific suspension condition.

Even where there is an apparently isolated incident within the records, which has not been recognised, and therefore led to an inaccuracy, you may be able to set a suspension condition that will prevent the underlying failure or weakness in record keeping from leading to a further careless inaccuracy. See example 2 below.

A suspension condition must specify the action to be taken and the period within which it must be taken. Any suspension condition must be SMART - Specific, Measurable, Achievable, Realistic and Time bound.

For guidance on suspension conditions, see CH83150.

Example 1

George is a self-employed taxi driver. During a compliance check he makes a prompted disclosure that he has failed to keep accurate records of his private mileage in the taxi and has deducted too much as motoring expenses in calculating his profits. You agree with George that

  • the inaccuracy is due to careless behaviour and
  • a penalty of £250 is due.

You could set a condition that he must keep suitable records to allow him to accurately calculate the private proportion of his motoring costs. You could set a suspension period of 4 months to allow George sufficient time to make the necessary improvements to his records and show that he is maintaining them.

Example 2

An inaccuracy arises because the cost of Julie’s Silver Wedding celebration was paid through her business and was not identified within her business records. As a result it was incorrectly treated as a business expense.

If Julie often pays for private expenditure through her business and the error is symptomatic of a fault in the accounting systems which failed to correctly identify private expenditure then it should be possible to set suspension conditions to address that weakness.

But if this is the only private item that Julie has ever paid for through her business, putting in place an accounting system to correctly identify private expenditure will not help Julie to avoid a further penalty for a careless inaccuracy. So it will not be possible to suspend the penalty for incorrectly claiming the cost of the silver wedding celebration through her business.

FA07/SCH24/PARA14 (3) & (4)