Supporting guidance: employer compliance guidance by subject: employment related securities: penalties: less serious error
An error may be considered ‘less serious’ if it can be put right by either amending or repairing the plan rules. For example
- there is an error in the plan rule
- the company does not have a system in place to ensure that leavers are dealt with correctly.
Legally we can charge a penalty of up to £5,000.
If you consider the error is ‘less serious’ you must consult ESSU who will decide whether the error is less serious, by sending an email to Shareschemes, SPT (Specialist PT ESSU). Include in your email a summary of the errors found and your reason for considering the errors to be less serious.
Once you have received confirmation from ESSU that the errors are ‘less serious’ in practise you can charge a penalty up to the lesser of
- a maximum of £5,000 or
- the amount of tax and NICs relief given or due.
The total amount of tax and NICs relief given or due is £4,000 therefore the maximum penalty is £4,000.
The total amount of tax and NICs relief given or due is £50,000 therefore the maximum penalty will be £5,000.
When determining the amount of the penalty you must consider whether the disclosure was prompted or unprompted, see CH82421.
The penalty should be calculated as follows:
Unprompted disclosure - the penalty will be reduced by 100% (see Example 1).
Prompted disclosure - the maximum penalty will be reduced by 50% (see Example 2).
No disclosure - the penalty will remain at the maximum shown above.
You have decided the error is less serious and disclosure is unprompted. You have calculated the amount of tax and NICs relief given in the sum of £50,000.
The penalty is based on the maximum of £5,000
reduced by 100% for unprompted disclosure = £0
Penalty due = £0
You have decided the error is less serious and disclosure is prompted. You have calculated the amount of tax and NICs relief given in the sum of £50,000.
The penalty is based on the maximum of £5,000
reduced by 50% for unprompted disclosure = £2,500
Penalty due = £2,500
How to raise the penalty
Where the error is deemed to be a ‘less serious’ error, the company is required to ‘repair’ or ‘correct’ the error within 90 days of:
- the end of the period during which the 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- the date on which any appeal against the decision is determined or withdrawn.
Penalties must be authorised by your Authorising Officer using the TASS AO report form (available in SEES), see COG945360.
The Authorising officer will
- consider the information provided
- authorise the penalty
- refer the papers back to you.
Once the penalty has been authorised, you must write to the company:
- confirming an error has been found
- confirming the decision on the penalty notice
- giving details of the action to be taken to repair the error and the deadline for completion.
You should then raise the penalty. This will be either by formal penalty assessment or can be included in a contract settlement if it is more cost effective and administratively convenient to do so, see CH411050.
When proceeding to raise a formal penalty assessment:
- prepare the Penalty Notice and schedule (available via SEES forms and letters)
- email the penalty details, penalty notice and schedule to the SAFE officer who will create the charge in SAFE using the charge type ERS other return related pens and return the stencil to you advising the SAFE reference
- use the SAFE reference to create a payslip
- issue the payslip, notice of penalty assessment and schedule
- BF the case for 90 days.
Company makes the repair
If the company repairs the error and provides evidence or confirmation that they have carried out the repair within the 90 day period, you should advise the company that they can retain their tax advantaged status and close the case.
Company does not make the repair
If the company or scheme organiser does not make the repair within the 90 day period you should issue a default notice and a further penalty unless there are reasonable grounds for the delay.
- calculate a further additional penalty based on an amount not exceeding twice the amount of tax and NICs relief given or due following the process for a penalty for serious error, see COG945380
Note: The total of both penalties can exceed the amount of twice the tax and NICs relief given or due
- submit the penalty calculation to your authorising officer.
Once authorised, you should write to the company using the default notice available in SEES to tell them:
- that tax advantaged status is to be withdrawn, giving details of the date, for example a date specified in the default notice or from the date of the notice
- that a further penalty is now due and
- issue a further penalty notice.
For details of when a penalty assessment should be issued see:
- ETASSUM27160 for SIP
- ETASSUM37100 for SAYE
- ETASSUM46160 for CSOP