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HMRC internal manual

Enquiry Manual

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HM Revenue & Customs
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Penalties: Introduction: Two Types of Penalty Offences

Every offence that attracts a penalty falls into one of two types; Failure or Error. The distinction is important because each type has its own conditions.

(i) Failure offences

The most common examples here are

  • failure to notify liability - e.g. TMA70/S7(8); FA98/SCH18/PARA2; FA08/SCH41/PARA6
  • failure to deliver a return, by the filing date, or at all - e.g. TMA70/S93; FA98/SCH18/PARA17 and 18
  • failure to comply with an information notice - e.g. TMA70/S97AA; FA98/SCH18/PARA29; TMA70/S98(1); FA08/SCH36/PARA39, 40 and 50.

All failure penalties can be successfully appealed (or not imposed in the first place) if the taxpayer can demonstrate that they

  1. had a reasonable excuse for the failure and
  2. remedied the failure without unreasonable delay after the excuse had ended.

(ii) Error offences

The most common example here is

  • Fraudulently or negligently delivering an incorrect return - e.g. TMA70/S95; FA98/SCH18/PARA20.

Simply delivering an incorrect return does not incur a penalty.

All error penalties require that the taxpayer committed the error fraudulently or negligently.

Fraud involves a deliberate intent to deceive. Negligence on the other hand does not imply any deliberate intent: it is simply a lack of reasonable care. However, the taxpayer has to have been negligent; negligence by an agent, alone, does not bring the taxpayer an error penalty.

This summary of error offences and the guidance at EM4800-4830 inclusive does not apply where the error (inaccuracy) is in a return or other document that

  • relates to a tax period beginning on or after 1 April 2008, and
  • has a filing date on or after 1 April 2009.

This is because Schedule 24 FA 2007 introduces a new penalty framework for inaccuracies in returns or other documents. You will find guidance on the Schedule 24 penalties in the Compliance Handbook at CH80000+ and CH400000+