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HMRC internal manual

Enquiry Manual

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HM Revenue & Customs
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Penalties: formal determinations: tax related penalties

In this guidance, the word ‘tax’ includes any NIC, VAT or other duty on which we are basing penalties.

What to do before the tax position is final

You must normally seek authorisation to issue penalty assessments or determinations before the tax position is final. This ensures that the taxpayer can have any appeals against both the tax and penalty decisions heard together by the tribunal.

If you need to prepare an AO Report Form in addition to a Penalty Decision Action Checklist (PDAC) you should

  • follow the instructions at EM5202 
  • make sure that the conditions for taking formal action have been met, see EM5207a 
  • enclose a copy of the Warning Letter, see EM5207b, that you sent to the taxpayer explaining the tax position.

For separate guidance about the PDAC, see CH407100 

If, exceptionally, you are not able to establish the penalty position before the tax position is final, you must explain this to the taxpayer and advise them when you will be able to consider penalties. For example, when any appeals against the tax position are final.

If the tax decision is already under appeal, and you have not already issued penalty assessments or determinations, for example because you have issued a penalty explanation letter but not the penalty assessment or determinations, you must write immediately to the taxpayer. You must tell them that they may wish to request postponement of any tribunal hearing until you have issued the penalty assessment or determinations.

What to do if the tax position is already final

Once the tax position becomes final you must proceed with penalties without any undue delay.

You will consider penalty time limits, see EM5001 and CH83040.

There will be circumstances when the tax position is finalised before you seek authorisation to issue penalties. These will be

  • where the tax position was finalised before the introduction of tribunal reform on 1 April 2009, or
  • where approval has been given by contact link or []()
  • because you were not able to establish the penalty position until the tax position was final.

If contact link has approved the finalisation of the tax position before you consider a penalty you must then seek a penalty either as soon as the specific reason the approval was given is no longer valid, or before the penalty time limits expire.

When preparing the “AO Report Form”, you should follow the instructions at EM5202, ensuring that

  • all relevant open enquiries have been closed and self-assessments amended
  • all necessary discovery assessments/determinations have been made
  • all S8 NICs decisions have been made
  • all open appeals have been determined, by S54 TMA70 agreement or by the tribunal, so that all are final and conclusive
  • all assessments and so on are valid and in order in all respects
  • all the liabilities have been released for recovery action. Give details of the stage reached in recovery.