Supporting Guidance: employer compliance: guidance by subject: settlement: culpability and penalties
It is important to understand that HMRC cannot just ‘take penalties’. The Department must have the legal authority to do so.
This means you cannot just declare to an employer or contractor ‘penalties are due’ without first establishing culpability (COG915040 - Culpability-What does it mean?)
To be able to seek a penalty you must identify either
- a failure or
- an error offence
(more information about the two basic types of offence is contained in COG914005 - Employers and Contractors Liability)
- identify the provision under which the offence can be penalised and
- for a tax or NICs geared penalty, quantify the liability which has gone unaccounted for because of the employer’s or contractor’s default.
For failure penalties this means you must
- establish that the employer or contractor has no ‘reasonable excuse’ for lateness (COG914065 - Reasonable Excuse).
For error penalties this means you must
- establish that the employer or contractor submitted an incorrect return fraudulently or negligently (COG914085 - Fraud, Neglect and Innocent error).
It is important to question the employer or contractor in order to establish the reasons for the failure or error (COG905275 - Effective Questioning to establish culpability).