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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: penalties: not appropriate

Penalties are not appropriate if

  • the employer or contractor is relieved of their liability for the tax underpaid following a direction under Regulation 72(5) Condition A - COG915180 or Regulation 9(5) Condition A - COG909370 respectively, or
  • the employer voluntarily settles liability which would otherwise have to be assessed on the employee, for example tax liability on benefits in kind - COG908060. However you may still consider penalties for the submission of incorrect returns in certain situations - COG914080.

Under the above Regulations HMRC accepts that the employer or contractor took reasonable care and acted in good faith when making the error and is directed not to pay any under- deduction. So the employer or contractor was not negligent and penalties for submitting incorrect returns are not appropriate.

You should follow COG914045 and COG914290 if there has been a failure to submit a return and also consider COG914030 regarding directions under

  • Regulation 72(5) Condition B - COG915185 
  • Regulation 81(4) Condition A and Condition B - COG915190, and
  • Regulation 9 (5) Condition B - COG909380 

Regulation 72F

You should make a decision on the actions and behaviours of the employer/contractor when making a direction under Regulation 72F as the imposition of a penalty will depend on the circumstances of the case COG915335 - settlement process.