Supporting guidance: employer compliance guidance by subject: employment related securities: Penalties: overview
‘Serious’ or ‘less serious errors’
If as a result of your enquiry you decide that the scheme does not meet the requirements for tax advantaged status of ITEPA 2003, you need to establish whether the error is a ‘serious error’ or ‘less serious error’, see:
- ETASSUM27150 for SIP
- ETASSUM37090 for SAYE
- ETASSUM46150 for CSOP
Factsheet CC/FS33 explains how the penalties for ‘serious error’ or ‘less serious error’ are calculated. You must issue it as soon as you have established that the scheme does not meet the requirements for tax advantaged status. If the error is ‘serious’ you must also issue Factsheet CC/FS9.
Penalties for ‘serious’ errors can be up to twice the amount of the amount of tax and NICs relief given or due. Where an error cannot be ‘fixed’ or ‘repaired’ it is deemed to be serious.
Penalties for ‘less serious errors’ must not exceed £5,000. Where an error can be ‘fixed’ or ‘repaired’ it may be deemed to be less serious. If the scheme did not comply with the relevant requirements and the error is not repaired within 90 days from either
- the end of the period during which an appeal can be made against the decision that the error is an error or
- the date on which any appeal against the decision is determined or withdrawn
a further penalty may be charged based on a percentage of the tax and NICs relief given or due on options or awards granted to employees when the scheme did not meet the requirements for tax advantaged status. Legally, the percentage can be up to twice the amount of tax and NICs relief given or due but this would be exceptional.
Note: You do not use the PDAC when calculating ‘serious error’ and ‘less serious error’ penalties (an authorisation form (TASS AO report) is available in SEES).
You should not take into account the amount of any late filing penalties when calculating the penalties for ‘serious’ and ‘less serious’ errors.
The caseworker must not approve their own penalty determination. If you need to issue a penalty you must first seek authorisation from the Authorising Officer. The Authorising Officer can be:
- a line manager or manager with the appropriate skills
- another manager or tax specialists within a team
- a tax specialist from another team, or
- a Customer Relationship Manager (CRM) (the CRM may be the same grade or a lower grade than the tax specialist or caseworker).
The penalty can be included in a contract settlement.
Late filing penalties
The company will be liable to automated late filing penalties where they fail to submit the annual return. The initial fixed penalty is £100 with 2 further penalties of £300 at months 3 and 6. Daily penalties of £10 per day will be charged where the failure continues beyond 9 months. ESSU will be responsible for considering and raising the daily penalties.