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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
, see all updates

Penalties: formal assessments and determinations: discussions with the taxpayer: when to take formal action: before commencing formal action

You must make sure that you have established both the tax and penalty position as accurately as possible before proceeding formally. This applies even when the intention of formal action is to encourage the taxpayer into resuming meaningful discussions.

If informing the taxpayer about your intention to issue formal tax amendments or assessments and to consider penalties does not result in a resumption of discussions, you will have no alternative but to proceed formally.

You will need to consider issuing early penalty assessments or determinations so that the tribunal can hear any appeals against both the tax and penalty assessments together.

Before taking formal action, you must be able to demonstrate to the Authorising Officer, who will normally be your manager, that the following conditions have been met

  • you have made a serious and sustained attempt to get the taxpayer’s agreement to our position on both the tax and penalties
  • you have met or tried to meet the taxpayer to explain the position face to face, where it is appropriate to do so
  • the taxpayer personally is fully aware of the reason for and amount of the offer sought (especially if enquiries have mainly been with an advisor) EM6375 and EM6381 
  • you have established the lost revenue as accurately as possible see EM3900+
  • you have already considered the underlying behaviours and the level of any potential penalty. It is good practice to discuss these informally with your manager before you consider formal action

Follow the guidance at EM3830+ if you intend to proceed formally because

  • the inaccuracies are not culpable, or 
  • you have reached agreement about the tax and any penalties but it is administratively more convenient to settle formally.

When penalties are involved you must also follow the guidance at EM4500+ for penalty determinations, or CH400000 for penalty assessments.

If you intend to proceed formally because you cannot reach agreement you must follow the guidance at EM5207b.

In all cases

  • you should normally seek authorisation for any penalty assessments or determinations at the same time as you seek agreement to issue any tax assessments,
  • you should always consider a penalty, unless you have already established that the inaccuracies are not culpable.

If the taxpayer has not co-operated with the enquiry and information powers have been fully utilised without success, it is reasonable to assume that the error is at the very least careless or negligent and you should always seek a penalty.

If there are exceptional circumstances where you are considering delaying formal penalties, approach contact link first.