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HMRC internal manual

COTAX Manual

Penalties: penalty determinations: making penalty determinations

This subject is presented as follows

General
Flat-rate penalty
Tax-related penalty
Multiple tax-related penalties
Further determinations

General

You use function PPEN (Prepare Penalty Determination) to make and amend penalty determinations.

The function bases its calculations on the specified period, which is not necessarily an AP, and the screens show:

  • the penalty or penalties incurred for each AP for which a return is required by a particular notice to deliver
  • any penalties charged so far.

In recording and displaying penalty information, COTAX treats the penalty legislation as imposing four different penalties rather than two.

  • F1 is a flat-rate penalty at the lower rate.
  • F2 is a flat-rate penalty at the higher rate.
  • TR1 is a tax-related penalty at the lower rate.
  • TR2 is a tax-related penalty at the higher rate.

When a company is liable to an increased level of flat-rate penalty, COTAX automatically calculates and displays the increased figures of £500 (for F1) and £1000 (for F2).

Before 1 April 2011, COTAX processing included a concessionary extension to the filing period under Extra Statutory Concession ESC / B45 and ESC / B46 (Word 24.5kb). COTAX did not record liability to a penalty until after that period has expired. The concessions ended on 31 March 2011 with the introduction of mandatory online filing of company tax returns.

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Flat-rate penalty

The flat-rate penalty liability that COTAX records is correct if the information on the record is correct. You cannot use function PPEN to change the amount of a flat rate penalty, you can only choose to charge the penalty or not.

If the function is showing a liability that you think is incorrect, check the following.

  • The recording of any necessary revised or deferred filing dates. For more information see COM1000 onwards.
  • Whether any existing penalties relate to a superseded AP. See COM101140 for more information.

Once you have used function PPEN to make a determination you cannot change it or prevent it being issued. If it is incorrect, you must make an amended determination by using function PPEN, after COTAX has issued the original determination.

If necessary, you can suppress the COTAX issued penalty output but you should only do so in exceptional circumstances, such as when you are amending to nil a penalty that was issued to a company that has now been struck off. COM100020 has more information.

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Tax-related penalty

COTAX operates in the same way for tax-related penalties as it does for flat-rate penalties, but you can amend the figure of tax unpaid (Word 37kb) used to calculate the penalty. This may be necessary, for example, when a company claims to have made a further payment before the 18 month point or there is an amendment to the tax charge.

Amending ‘unpaid tax’

If you need to amend the figure of unpaid tax, use function PPEN and select the [AP Details] button on screen COT130D, then enter your figure of tax paid at the 18 month point in the Tax Paid at TR1 Date (Inspector) field on screen COT130K and select the [OK] button.

COTAX then uses that figure to recalculate the unpaid tax and revises and issues the tax-related penalty automatically unless you use have used PPEN to do it manually.

If, exceptionally, the filing date for the return is more than 18 months after the end of the AP, then the penalty is based upon the tax unpaid at that later date. See COM100070 for more information.

Once you have used function PPEN to make a determination you cannot change it or prevent it being issued. If it is incorrect, you must make an amended determination using function PPEN, after COTAX has issued the original determination. As with flat-rate penalties, you can suppress the COTAX issued penalty output in exceptional circumstances.

You should note that COTAX does not recognise that a tax-related penalty has been incurred when the return has not been delivered within 18 months after the end of the AP if you reissued the notice to deliver and so, unusually, the tax-related penalty is incurred earlier than the higher (£200) flat-rate penalty. See COM100000 for more information

The company is liable to both a £100 flat-rate and a 10% tax-related penalty, but COTAX does not identify the tax-related penalty until either the higher flat-rate penalty is incurred or the return is received. Automatic penalty processing then takes place.

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Multiple tax-related penalties

Companies may be liable to two or more tax-related penalties on the same amount of CT. For example, a penalty could arise under Paras 18(2) and 20 Schedule 18 FA 1998.

Para 90 Schedule 18 FA 1998 prevents a double penalty charge on the same amount of tax by limiting the total amount of tax-related penalty chargeable to the greater of them.

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Further determinations

You can make a further determination of a penalty if you discover that the penalty in the original notice is, or has become, insufficient. S100(5) TMA 1970 provides the authority in such cases.

Where the amount of unpaid tax changes, whether or not the determination is under appeal, COTAX automatically issues an amended determination unless you have already used function PPEN to do it manually.

See:

  • COM101031 for a list of functions to use in particular situations
  • COM101011 for legislation applying to this subject.