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HMRC internal manual

Compliance Operational Guidance

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HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: penalties: failure to submit an end of year return (P35/CIS36) - over 12 months of lateness

You do not use the PDAC when calculating these penalties.

Section 98A(2)(b) TMA 1970

See COG914295 regarding the application of Section 98A penalties for failure to submit CIS monthly returns from 6-4-2007 to 05-10-2011.

This provides a further penalty, additional to the Section 98A(2)(a) monthly penalty - COG914045, where the failure continues beyond 12 months. For example:

  • if the 2006-2007 End of Year Return was not made by 19 May 2008, this additional penalty could be sought.

The End of Year Section (EOY) can deal with these cases but EC is usually best placed to consider these penalties and include them in a contract settlement where

  • the employer/contractor has failed to submit a return by the due date and
  • End of Year section have not taken action to seek a penalty.

Where the penalty is to be sought as part of the case you must

  • liaise with the EOY Section and
  • arrange for ECS to be inhibited if necessary.

The maximum penalty before abatements is equal to the amount of unpaid tax and NIC at 19 April immediately following the year end.

Thus in the example above

  • if a return submitted after 19 May 2008

    • showed £6,000 due
    • but only £1,000 was paid at 19 April 2007
  • the maximum penalty before abatements would be £5,000.

Where you are involved with an employer/contractor where returns are outstanding beyond 12 months you should

  • arrange to have the form P35 processed if PAYE was operated, otherwise
  • seek a contract settlement to include the liability outstanding, interest and penalties.

Note that these penalties are based on 100% of the tax / NICs difference or the tax / NICs underpaid and are subject to Article 6 of ECHR - COG906050.

You should

  • provide HRA advice and
  • issue factsheets CC/FS9 and CC/FS19

to the employer/contractor at the earliest opportunity. COG906060 - penalties - when to issue.

You also need to keep a sense of proportion when considering failure penalties where both the first 12 months of lateness and over 12 months of lateness are an issue. The attached examples - first 12 months and over 12 months of lateness (Word 64KB) should assist with this.

If it has been necessary to issue formal determinations or decisions consideration should be given to issuing penalties, COG914175 - formal action, at the same time and listing all appeals for the same Tribunal hearing.

Regulation 80 Determinations - COG915150

Section 8 NICs Decision - COG915155

Regulation 13 Determinations - COG909400

Where a late return is found to be incorrect Section 98A(4) penalties also need to be considered - COG914070.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)