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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
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Negotiating the penalty: informing the taxpayer

When you negotiate a penalty you must explain why you are seeking a penalty and the offence involved. If this is not done in a letter, there should be a clear telephone note or note of a meeting on the file which shows that this was fully explained before you invite the taxpayer to make any offer in settlement.

It is equally essential that in any discussion or correspondence about penalties the question of abatement should be clearly brought out. You must

  • draw the taxpayer’s attention to the maximum penalties available under the law
  • draw the taxpayer’s attention to the Board’s powers to abate (IHTM36171) penalties and accept an offer as explained in leaflet IHT 13
  • indicate the level of penalty (‘the expected offer’ (IHTM36174)) which you , feel is appropriate in the circumstances, after having sought prior approval (IHTM36223), and show in general terms how you have arrived at the figure, for example £50,000 (uplift) x 40% (tax) x 15% (loading)
  • invite the taxpayer to make an offer (in some cases this may be accompanied by a ‘letter of offer’ (IHTM36331) at this stage)
  • explain that if a mutually acceptable penalty cannot be negotiated, the Board may commence proceedings for the recovery of a penalty before the First-tier Tribunal, or, exceptionally, the Courts (This content has been withheld because of exemptions in the Freedom of Information Act 2000) (This content has been withheld because of exemptions in the Freedom of Information Act 2000) (This content has been withheld because of exemptions in the Freedom of Information Act 2000) If an agent is acting, you can in the first instance put these matters to the agent, with a request that the client is made aware of the position. But if negotiations become protracted or deadlocked, you should ask for a meeting with the taxpayers themselves so you can explain your views directly to them. If the meeting is refused, you should write to the taxpayers, copying your letter to the agent, setting out your case and covering the matters referred to above.

In larger and more difficult cases, you should seek an interview with the taxpayer and the agent at the outset rather than write. You cannot insist on an interview although you should point out that it is essential for the taxpayer to know exactly what the position is and it will be the last opportunity to make a plea in mitigation of the penalties you consider due. This can usually best be done at an interview.

You should not normally hold a settlement interview with the taxpayer alone, unless the agent is aware that you are doing so and does not object.