Negotiating a penalty: establishing culpability
The word culpable is used here to describe any act (or failure to act) that triggers a penalty. But it is a word that you should avoid using outside HMRC because of its emotive nature. You should instead try to use words such as ‘tax on which the penalty is due’ instead of culpable tax.
An important part of the settlement involves the establishment of culpability, that is negligence (IHTM36301) or fraud (IHTM36291), and the consequences. In general you will only need to seek to establish fraud (IHTM36226) as part of a pecuniary settlement if the abatement for gravity (IHTM36201) is affected, or you feel, exceptionally, that you need to impress on the taxpayers the gravity of their actions.
When you inform the taxpayer (IHTM36224) that you are seeking a penalty you set out the reasons why you believe a penalty is due and how the amount of penalty you are seeking is supported by the facts. If neither the agent nor the taxpayer denies the charge it may be taken that the culpability is established. Having established culpability, you can explain its effect on the recoverability of penalties. There is separate guidance on what you should do if they dispute culpability (IHTM36233) or do not make the expected offer (IHTM36231).
If culpability is discussed at an interview or over the telephone you need to record what was said about culpability in the note of the interview or the telephone call. You will need to identify what was said about culpability if a report of the case has to be submitted to Tax Administration Advice (IHTM36361).