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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: penalties: employer’s and contractor’s liability

You do not use the PDAC when calculating these penalties.

Employers and contractors are required

  • to submit PAYE, NIC, CSL end of year returns
  • CIS end of year returns up to 05-04-07
  • CIS monthly returns from 06-04-07
  • forms P11D, P11D(b), within statutory time limits, and
  • are responsible for making sure that the returns are correct.

With effect from 1 April 2009 there will be two different penalty regimes in operation.

If a return which covers a tax period beginning on or after 1 April 2008 and due to be filed from 1 April 2009 is submitted with inaccuracies it will be subject to the new penalty regime outlined in Schedule 24 of FA2007 and summarised in the Compliance Handbook (CH).

Note: Schedule 24 penalties only apply to incorrect forms P11D(b) for 2010-11 and later years. Penalties will still be chargeable under Regulation 81(1) Social Security (Contributions) Regulations 2001, see COG914075 - Class 1A NIC Incorrect Form, for P11D(b) forms for years up to and including 2009-10.

EC staff should familiarise themselves with the CH and the different terminology used. See CH80000).

This chapter deals with the regime in existence for returns due up to 31/3/2009.

There are two kinds of penalty

  • failure penalties:

    • for failing to do something, such as making a return on time. COG914045 - Failure to submit first 12 months, COG914050 - Failure to submit over 12 months, COG914055 - Failure to submit Form P11D(b), COG914060 - Failure to submit P11D forms, COG914290 - CIS Failure to submit first 12 months and COG914295 - CIS Failure to submit over 12 months.
  • error penalties:

    • for doing something wrong, such as fraudulently or negligently submitting an incorrect return COG914070 - Incorrect End of year returns, COG914075 - Incorrect form P11D(b), COG914080 - Incorrect P11D forms and COG914300 - CIS - Incorrect monthly returns.

Failure penalties are due if, as a matter of fact, the failure occurred. For example the return was late. You do not need to show ‘fraudulent or negligent conduct’.

Failure penalties will continue to be issued in the same way as they are now. However a new penalty regime will also be introduced for late filing penalties as part of Finance Bill 2009.

The only way to avoid a failure penalty is for the employer or contractor to demonstrate a reasonable excuse for lateness COG914065. The excuse must cover the whole period of lateness.

Error penalties are due if a return is incorrect, but it must be incorrect due to fraudulent or negligent conduct COG914085.

See COG914010 regarding domestic employers (DOME schemes).

See COG914020 regarding Statutory Payments penalties.