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HMRC internal manual

Compliance Operational Guidance

HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: penalties: incorrect P11D returns

You do not use the PDAC when calculating these penalties.

Section 98(2) TMA 1970 provides a maximum penalty of £3,000 for each fraudulently or negligently incorrect return, see COG914085. Circumstances in which these penalties may be appropriate are

  • the employer has refused to settle the employees’ tax (see - Penalties Incorrect P11D returns (Word 31kb) examples
  • there has been a previous voluntary settlement of liability on employees’ benefits. Then a repetition of the situation in later years is discovered
  • further benefits are discovered for the same period for which a previous voluntary settlement has been negotiated (see - Penalties Incorrect P11D returns (Word 31KB)
  • very large cases (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • where errors or omissions appear to be a deliberate attempt by the employer to conceal employee benefits.

To arrive at an appropriate penalty in these cases you should

  • calculate the tax underpaid
  • apply the abatement process at COG914095, but
  • restrict any penalty where the result exceeds the statutory maximum - COG914130.

These penalties can be agreed locally and included in a contract settlement see COG914155 - The expected offer - Who makes the decisions.

If agreement on the proposed penalty can not be reached with the employer/agent the papers will have to be submitted to the Authorising Officer, via the Senior Manager and the Business Unit Head for approval of formal penalty action - COG914175.

The case papers should always be sent with the submission and should include

  • a brief summary of the facts
  • a computation of the tax arising from errors and omissions
  • details of the maximum penalties involved, for example

    • the number of years involved, and
    • the number of incorrect P11Ds in each of those years, and
  • details of how the penalty has been calculated.

The Authorising Officer will advise on

  • whether to proceed for penalties, and
  • confirmation of the amount of penalty to seek.

In any cases of doubt and to save unnecessary submissions,

  • contact TAA Technical for advice - see COG904770.