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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Penalties: Claims to Reduce Payments on Account


Payments on account under TMA70/S59A for any tax year are due on 31 January of that tax year and 31 July next following that tax year, subject to de minimis limits and are calculated by reference to the tax liability for the preceding year.

Where a taxpayer’s circumstances change significantly from one year to the next, they can make a claim to reduce or cancel the payments on account.

The revised payments should reflect the taxpayer’s views on what payment on account, if any, are due for the current year.

A penalty can be charged where a taxpayer, fraudulently or negligently EM5125, makes an incorrect statement in connection with such a claim.

Where your enquiries show the claim to be excessive you should consider, in appropriate cases, whether penalties may be due. Appropriate cases are those where

  • the false claim was particularly blatant, for example, there were no facts at all that could reasonably have led the taxpayer to believe that a reduced payment was due, or
  • the taxpayer has systematically and regularly made unjustified claims to reduce payments, and
  • the reduction was large both in absolute terms and in relation to the true liability.

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

The maximum amount of the penalty is the difference between

  • the amount that would have been paid but for the incorrect statement, and
  • the amount of the payments on account actually made.

That penalty is subject to abatement by HMRC and can be amended or cancelled as a result of an appeal to the tribunal.

The intention of the penalty is to prevent gross or persistent abuse. If the taxpayer makes an accurate self assessment, no actual tax loss will result from the claim to reduce payments on account. Payment of tax properly due will simply have been deferred, and interest will be payable on the deferred tax. In practice it will be difficult to charge a penalty in these cases because we will not be able to demonstrate the taxpayer acted negligently. DARM officers will therefore not generally review cases for potential penalties under Section 59A(6) merely because the payments on account were less than they might have been.