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HMRC internal manual

Compliance Handbook

HM Revenue & Customs
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Penalties for inaccuracies: how to process the penalty: suspension of a penalty: circumstances in which you cannot suspend a penalty: current and past behaviour indicates the person is unlikely to comply with 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.

CH83134 explains the indicators that penalty suspension may be appropriate.

It is likely that the careless inaccuracy will be identified some time before you are considering whether you can suspend the penalty. Ideally the person should improve their record keeping when you make them aware that it is unsatisfactory. So where the person takes steps to improve their record keeping during your compliance check, this will be a good indication that the person will benefit from penalty suspension.

Conversely, where the person does not take action to improve their record keeping when you make them aware that it is unsatisfactory this will be an indication that they may not benefit from penalty suspension.

The following factors are relevant to your consideration of whether, or not, suspension is appropriate;

  • Whether the person has a history of non-compliance. CH83144 explains what to do where the person has previously been involved in tax avoidance or fraudulent activity.
  • Whether the person has outstanding returns or arrears of tax etc
  • Whether the disclosure was prompted or unprompted
  • The quality of disclosure during your compliance check. Where the person has not co-operated fully with your compliance check, this may indicate that they will not benefit from suspending the penalty for a careless inaccuracy.
  • Are there any deliberate inaccuracies in this compliance check? If your compliance check identifies a deliberate inaccuracy, in any year included in your check, as well as a careless inaccuracy, it will not normally be appropriate to suspend the careless inaccuracy. That is because suspension is to encourage voluntary compliance but the deliberate inaccuracy is an indication that the person will not benefit from suspending the penalty.

You should consider all of these factors to reach a balanced view on whether, or not, you consider that suspending a penalty will improve the person’s future compliance. If you consider that the person will not improve their compliance in future, you should not suspend the penalty. CH83120 explains the importance of only taking relevant factors in to account when making the decision about whether, or not, to suspend a penalty.

Example 1

Ella carelessly repeats a similar inaccuracy within three years of a previous suspended penalty for a careless inaccuracy. This behaviour suggests that suspension of the second penalty may not be appropriate.

Example 2

Two directors carry on the same business or trade successively through a series of companies. Each of the companies in turn becomes insolvent, leaving large unpaid tax and NICs debts. Each company will typically transfer its business, minus its debts, to the next company. Only essential trade suppliers are paid in full before the transfer, so that tax and NICs remain deliberately outstanding. When the latest of their companies incurs a penalty for a careless inaccuracy you may conclude that the two directors’ past compliance history means that suspension would not be appropriate.