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HMRC internal manual

COTAX Manual

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HM Revenue & Customs
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Penalties: late delivery of returns: companies requiring special consideration

This subject is presented as follows.

Companies outside the charge to CT
Companies in receivership, administration, administrative receivership or liquidation
Members clubs and voluntary associations
Companies struck off 

Companies outside the charge to CT

If a company has been served with a notice but is outside the charge to CT because, for example, it is dormant, it is strictly liable to a penalty for failure to deliver a return.

However, in practice, if the company was outside the charge to CT for the period for which a notice has been issued and a penalty has not already been charged:

  • do not charge a penalty, but use function MAPD (Maintain Accounting Period Details) to amend the AP structure and set the dormant AP status, causing COTAX to automatically set the ‘no penalty required’ signal
  • do not insist on a formal return.

If the company was outside the charge to CT for the period for which a notice has been issued and a penalty has already been charged:

  • use function MAPD to amend the AP structure and set the dormant AP status, when COTAX enters the case on work list PENR (Penalties Requiring Review) with an attribute of ‘company outside the charge to CT’
  • use function PPEN (Prepare Penalty Determination) to discharge the penalty on appeal, where one has been made
  • do not insist on a formal return, but treat the correspondence from the company as an appeal when the company has made no formal appeal against the penalty determination.

COTAX does not allow you to charge a penalty for a period that is recorded as, or is included in a period of dormancy.

Companies in receivership, administration, administrative receivership or liquidation

Companies that are in receivership, administration, administrative receivership or liquidation can incur penalties for failure to deliver a return on time. In practice, HMRC is unlikely to receive payment towards outstanding penalty charges in many of these cases.

Administrations

Under the Enterprise Act 2002, administrators are proper officers in legal terms, so they are responsible for the tax affairs of the company.

This includes delivery of returns for the period of administration and payment of tax for that period.

Companies in administration are liable to late-filing penalties if they fail to deliver a return on time for a period that falls in the administration.

The start of a period of administration means the end of the existing accounting period (AP) on the day before the administration start date and the start of a new AP from the administration start date.

The end of an administration period leads to the existing AP ending on that day and a new AP starting the next day.

See COM1020 for further information on APs in administration cases.

A company in liquidation can subsequently go into administration. In these circumstances a new AP starts and the administrator takes over from the liquidator.

A company may then:

  • go back into liquidation after the administration ends
  • become solvent and be handed back to the directors
  • be sold on or
  • be struck off.

Administrators are able to make returns before the end of the final AP of the administration period.

Further information on administrations is available in The Insolvency Manual.

When you are told of an administration:

  • use function ACTP (Amend CT Payer Details) to enter the administration start date then
  • use function ACAP to enter capacitor details.

For each AP ending before the administration start date, setting the capacity role to ‘administrator’ in function ACAP also sets the ‘no penalty required’ signal for each AP for which a notice to deliver has been issued, no return made and no penalty determination issued.

Penalties are chargeable on companies during the period of administration and automatic penalty processing applies.

Companies in receivership or administrative receivership

Do not charge penalties for late returns. As soon as you know that a receiver has been appointed, use function ACAP (Add / Amend Capacity Details) to enter capacitor details.

Setting the capacity role to ‘receiver’ in function ACAP also sets the ‘no penalty required’ signal for each AP for which a notice to deliver has been issued, no return made and no penalty determination issued.

Each AP where a penalty has been charged is entered on work list PENR (Penalties Requiring Review) with the reason ‘company in administration / receivership’. For further information on dealing with such cases see COM140000 onwards.

The Debt Management office deals with any unpaid penalties determined for periods before the receiver or administrator took office.

Companies continuing to trade after a receivership or administrative receivership

The capacity of ‘receiver’ is removed from the record when a company continues to trade after receivership or administrative receivership. The ‘no penalty required’ signal remains on any existing APs for which it is set, but is not set on any future APs. This means that automatic penalty issue resumes for those future APs.

If the company remains active after the receivership has ended you must consider charging penalties for the period during which the receiver was in place.

Where you want to issue a penalty, use function MPEN to unset the existing penalty inhibition signal. COTAX will issue penalties automatically.

If you charge penalties then accept a claim for reasonable excuse, you must use:

  • function PPEN to reduce the determination to nil then
  • function MPEN to set the penalty inhibition signal to prevent automatic penalty issue.

Companies in liquidation

Do not charge penalties for late returns covering periods up to the date of winding-up. As soon as you know that a liquidator has been appointed, use function ACTP (Amend CT Payer Details) to enter the date of liquidation and set the ‘co liqn - mem vol’ signal to ‘Y’ or ‘N’.

Penalties charged are unlikely to be recovered if the company is in creditors voluntary or compulsory liquidation. If you set the ‘co liqn - mem vol’ signal to ‘N’, COTAX sets the ‘no penalty required’ signal for each AP ending before and after the date of liquidation, for which a notice to deliver has been issued and no return made.

Companies in members’ voluntary liquidation are solvent and penalties should be charged if due. If you set the ‘co liqn - mem vol’ signal to ‘Y’, COTAX automatically issues penalties unless you manually set an inhibition signal.

Any unpaid penalties determined after the date of winding-up in respect of failures before that date are dealt with by the Debt Management office and remitted if appropriate.

Unpaid penalties determined before the date of winding-up are claimed in the liquidation as non-preferential debts. When formulating the HMRC claim, the Debt Management office will ask for advice from the office responsible for the case if the insolvency practitioner:

  • sends an appeal against a penalty
  • disputes the amount of a penalty or
  • makes a plea for mitigation.

Penalties that have been determined and not appealed against should be pursued unless the determination has become excessive.

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Members clubs and voluntary associations

Members’ clubs and voluntary associations are liable to penalties for failure to deliver a return. COTAX normally charges penalties automatically, but you should give sympathetic consideration to a claim for reasonable excuse when the treasurer or officer concerned has no previous experience of CT matters and claims to have misunderstood the obligation imposed by the notice to deliver.

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Companies struck off

You may occasionally need to reduce a penalty to nil after a company has been struck off. If the penalty was charged after the company was struck off, you can use function PPEN to reduce the penalty to nil and set the ‘suppress printed output?’ option to ‘Y’. This ensures that no amended penalty output is issued to the struck off company.

Although you have suppressed the output, the COTAX record shows the amended penalty. Function DPEN shows ‘suppressed’ in red font and the date you suppressed the output. You cannot reissue suppressed output using function RPEN (Request Reissue Of Penalty Determination). If an AP has both issued and suppressed determinations, function RPEN only shows the issued determination.

See:

  • COM100011 for a list of forms relevant to this subject
  • COM100012 for a list of functions to use in particular situations
  • COM100013 for legislation applying to this subject.