HMRC internal manual

Enquiry Manual

EM4650 - Penalties: Failure to Keep or Preserve Records: Approach



FA98/SCH18/PARA 23

A penalty up to £3,000 may be charged for each failure to keep or to preserve adequate records in respect of a return or in respect of a claim made other than in a return. For this purpose there can be only one failure for each return or for each claim. These penalties can be set at less than the maximum in accordance with TMA 70/S100(1) and are subject to the normal appeal rights.

It is not HMRC’s intention to seek penalties under this heading in every case where there is evidence that the taxpayer had failed to maintain and retain the required records. In the majority of cases where the taxpayer has failed to keep adequate records and where, as a result, we have brought to light offences under TMA70/S95 or FA98/SCH18/PARA20, it will be sufficient simply to continue to reflect those failures in calculating the level of penalties you consider to be appropriate.

Assurances have been given that Section 12B(5) etc. penalties will only be sought in the more serious cases, where, for example, records have been destroyed deliberately to obstruct an enquiry or where there has been a history of record keeping failures.

On the first occasion that a failure under this heading comes to light and it is not a provable, deliberate destruction of records, a written warning should be sent to the taxpayer (copy to agent) in the following terms, modified to fit the particular circumstances, as soon as the failure is established

‘I am writing to you concerning your failure to keep/preserve [part of] the records of [your business/the business trading as………] for the accounting period from [date/month/year] to [date/month/year] inclusive.

Your failure renders you liable to a penalty not exceeding £3,000.

On this occasion I do not propose to charge a penalty specifically for this failure but I must advise you that if there is any failure to keep or preserve records, to support your [tax return/claim], in future years a penalty may be charged..’

Because this is a warning letter there is no need to include any references to statute. There is no right of appeal against a warning letter, so we need to be clear that it is not a penalty determination. If you are considering a second failure under this heading but no written warning was given on the first occasion you should send the above letter.

Where the warning letter is issued there will be no need to submit the case on this occasion and the failure may be reflected in any calculation of the level of penalties under Section 95, etc. Where there is a later offence after a warning letter has been sent, and in other serious cases as described above you must obtain approval from your authorising officer, see EM5201, before taking penalty action(This content has been withheld because of exemptions in the Freedom of Information Act 2000) .

If you have a case which you consider is appropriate for such action you should tell the taxpayer that a penalty under this heading is under consideration and invite them to explain what reasonable excuse they have for the failure and to set out whatever representations they wish to be taken into account. You should then submit your papers with a report outlining details of the failure and the reasons why you consider penalty action should be taken, as soon as the failure has been established. Consideration will be given to the making of a penalty determination under this heading at that time rather than at the conclusion of the enquiry. For guidance on how to issue a penalty determination and what to include see EM5251 and EM5253.

Where a specific penalty determination for failure to keep or preserve adequate records is not thought appropriate for penalty action under this heading, the failure will continue to be taken into account in determining the level of any Section 95, etc. penalties.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)