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HMRC internal manual

Compliance Handbook

From
HM Revenue & Customs
Updated
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Penalties for inaccuracies: how to process the penalty: suspension of a penalty: circumstances in which you cannot suspend a penalty: suspension conditions cannot be set

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.

This means that you must be able to identify the potential careless inaccuracy in a future return that would result in a further penalty under para 1.

If you can’t identify a potential careless inaccuracy in a future return, then you will not be able to suspend the penalty because you will not be able to identify SMART suspension conditions that would help the person to avoid further penalties for a careless inaccuracy. See examples 1 and 2 below.

There may be some situations where the careless inaccuracy arises from a very straightforward mistake that is not caused by a systemic problem. In that case you will not be able to set a condition that will help the person avoid that mistake in future. See examples 3 and 4 below. This is because there is no underlying failure or weakness in record keeping that can be corrected by a specific suspension condition.

Where the careless inaccuracy that you are penalising in this compliance check will not recur in future returns, the person may propose specific suspension conditions that 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. 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 not suspend a penalty for a careless inaccuracy where you are not reasonably certain that the specific suspension conditions would help the person to avoid a penalty for a different careless inaccuracy in a future return.

Example 1

A tennis club sells all of its land to the local authority for a road widening scheme. The club moves to new premises, which it rents from the local authority.

The club omits the capital gain on the sale of the land from its return. It accepts that a penalty is due for a careless inaccuracy. The club also makes a return of its trading income, an employer’s return and a VAT return. Each of those returns is correct and the supporting business records are of an acceptable standard.

The club no longer has any land or other assets that, if sold, would lead to a capital gain. As there is no likelihood of a future capital gain, and there is no problem with their other returns or record-keeping, there is no condition that could be set to avoid an inaccuracy arising in future. So you cannot suspend the penalty.

Example 2

Ken incurred a penalty for a careless inaccuracy in his final self assessment income tax return. As he has now retired from all business activity he will no longer be required to make a self assessment return. So there is no condition that could be set to help Ken avoid a penalty for a careless inaccuracy in future. So you cannot suspend the penalty.

Example 3

Helen, who is liable to income tax at higher rates, ceases in employment and receives a termination payment of £70,000. The payment is made after the employer has issued her P45 and basic rate tax is deducted on the payment. Helen should account for the higher rate tax on the termination payment by entering the gross payment and tax deducted on the Additional Information section of her self assessment return. She carelessly fails to do so. Unless this inaccuracy occurred because of a record keeping weakness, you will not be able to identify a further penalty that would be avoided by suspending this penalty. So you can not suspend this penalty.

Example 4

Colin completes his self assessment return to show the pay and tax details from his employment. He shows the gross pay correctly on the return. However, instead of entering the correct tax deducted figure, he instead shows the net pay figure. This leads to an incorrect over-repayment of £25,000. If Colin had been taking reasonable care he ought to have realised that something was wrong with the return.

The inaccuracy arose from a simple but careless inaccuracy. There is no suspension condition that you can set that would help Colin avoid this careless inaccuracy in future returns.