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HMRC internal manual

Self Assessment Manual

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HM Revenue & Customs
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Interest, penalties and surcharge: penalties: fixed automatic penalty record: amending the

This guidance refers to tax returns received for 2009-10 and earlier. For further information regarding the new rules for the tax years 2010-11 and later, see SAM61200 onwards.

 

Applying fixed penalties

The vast majority of these £100 penalties will be charged automatically but there is a function, AMEND FIXED PENALTIES, which can be used to charge fixed penalties for earlier years. This is limited to returns where the year of liability (tax year) ended at least two calendar years before the current calendar year.

For example, during the calendar year 2010 (1 January 2010 to 31 December 2010) fixed automatic penalties can be charged online for the year of liability (tax year) ended during the calendar year 1 January 2008 to 31 December 2008 (tax year 2007-08) and earlier. Once 1 January 2010 is reached the function can be used for tax years 2008-09 and earlier.

Any fixed penalties for the year 2008-09 will, during calendar year 1 January 2010 to 31 December 2010, be charged automatically (see subject ‘Fixed Automatic Penalties: Automatic Imposition of’ (SAM61020)), unless any of the following circumstances apply

  • The year of liability (tax year) ends in the previous calendar year but the return is issued late and the due date of the return is later than 31 December of the current calendar year. For example 2008-09 return issued on 24 September 2010 will have a due date of 3 months and 7 days later which is 1 January 2011, a fixed automatic penalty will not be automatically imposed if the return is received after the due date. (See subject ‘Fixed Penalties: Late Issued Returns (SAM61050))
  • A penalty has been imposed and cancelled and a replacement (reissue) return has been issued. (You will need to impose the penalty manually, (see subject ‘Re-applying FAP After Cancellation’ (SAM61032))

Notes: 

1. In these circumstances, you should check whether a deferred filing date has been set, and passed, before proceeding to charge a penalty.
   
2. You must not cancel a penalty when issuing a duplicate return, the original due date of the return remains the same and the penalty has been correctly imposed.

If you use the function AMEND FIXED PENALTIES where a taxpayer is subject to bankruptcy or to an individual voluntary arrangement a message will appear on screen. It is unlikely that you would wish to apply a fixed automatic penalty to such a taxpayer but where you think a fixed automatic penalty is appropriate, ignore the warning and continue in the function to apply a fixed automatic penalty.

The penalty is due 30 days after the issue of the penalty notice.

Cancelling fixed automatic penalties

Function AMEND FIXED PENALTIES can also be used to cancel fixed automatic penalties.

The most common circumstances for cancelling a fixed automatic penalty are

  • Following the settling of an appeal
  • Where a return is logged after the penalty has been imposed but the logging is backdated to 31 October (or exceptionally 31 July)
  • Where you accept that the original return was not properly served and a penalty (or penalties) has already been imposed

In the last situation you should cancel the penalty using function AMEND FIXED PENALTIES before re-issuing the return using function RECORD RETURN REQUEST, or RECORD DATE OF CLERICAL ISSUE where the return is re-issued manually. If you subsequently need to re-impose a fixed penalty after cancellation see subject ‘Reapplying FAP after cancellation’ (SAM61032) using an establishment file to monitor and review such cases.

Where a taxpayer dies before the filing date see subject ‘Permanent Cessation: deceased cases’ (SAM90010)

You can only cancel a fixed automatic penalty in full - that is you cannot cancel part of a £100 penalty, although you can cancel the second £100 penalty and not the first. Take care not to cancel any reapplied penalty before it is actually on record.

When cancelling a fixed automatic penalty, a drop down menu is displayed from which you must select the reason for cancellation from the list of options. These are

  • Incorrect logging
  • Duplicate record
  • Cessation
  • Reasonable excuse
  • Other

You cannot cancel a fixed automatic penalty without recording a reason for cancellation. Once you have cancelled a fixed automatic penalty, you can view the date the penalty was cancelled and the reason for cancellation.

Partnership cases

In partnership cases all partners will be charged a fixed automatic penalty if the partnership return is not filed by the filing date. If you wish to cancel any penalties raised because of the late filing of the partnership return do so through the partnership record and not the records of the individual partners. The SA system will then automatically cancel penalties raised on the individual partners’ records because of late filing of the partnership return (this will be done overnight).

Reapplying a fixed penalty after cancellation

Once you have cancelled a fixed automatic penalty you can reapply it using function CHARGE FIRST PENALTY, available through the function AMEND FIXED PENALTIES. But this is subject to the limitations as described above, that the function is limited to the tax years ending at least two years before the current calendar year (CY - 2 and earlier), for example 2007-08 and earlier in 2010. Note that the record will not be updated immediately - the penalty will be raised and the notice issued in the next batch run (usually monthly).

If you need to reapply a penalty for CY - 1, use function CREATE SUNDRY CHARGE to apply a miscellaneous penalty charge on record. For example in the calendar year 2010 where a 2008-09 penalty has been charged and cancelled, and a return has been reissued but has not been received by the revised filing date, and a penalty then becomes due. You will also have to issue a penalty determination clerically.

Exceptionally if you want to reapply a fixed penalty but the Record Daily Penalties signal is set, check to see if daily penalties have been applied. If not confirm that daily penalties are to be charged and if not consider cancelling the Record Daily Penalties signal and apply a fixed penalty. If daily penalties have been raised or are to be raised, do not reapply a fixed penalty.

Capping of fixed automatic penalties

Where fixed automatic penalties exceed the total amount due for a year the SA computer will automatically reduce (cap) fixed automatic penalties to the total amount shown on the return (box 1 of the Tax Calculation Summary page TCS1; box 18.3 of the return for years up to, and including, 2006-07).

The legislation also requires that fixed automatic penalties should be capped where the amount shown in TCS1 box 1 (box 18.3 up to, and including, 2006-07) less any amounts paid at the filing date is less than the amount of the fixed automatic penalty.

A Penalty Notice (SA326) is issued for all penalties, even those capped to nil. The nil penalty notice gives the taxpayer, who knows the return is late (and has no tax liability), confirmation that the penalty is capped at nil. As the penalty may not remain at nil (if, for example, the return is amended) it is important that the taxpayer is aware that a penalty has been incurred.

For returns for 2001-2002 and later years this is done automatically by the computer system. But for returns for earlier years, clerical action is necessary to cap penalties in such circumstances because the system will not do this automatically. The following examples provide further detail

Example 1 2009-10
   
Gross tax payable per return £10,000
Less payments on account made  

31 January 2010

31 July 2010 £4,500
£4,500    
  Further payment 31 December 2010 £920
  Total tax paid at fixed filing date (31/01/11) £9,920
  Balance outstanding at fixed filing date (31/01/11) £80
Return filed 1 October 2011 - fixed automatic penalties £200
 
Fixed automatic penalties should be reduced (capped) to £80, equal to balance outstanding at filing date
Example 2 2009-10
   
Gross tax payable per return £10,000
Less payments on account made  

31 January 2010

31 July 2010 £4,500
£4,500    
  Total tax paid at fixed filing date (31/01/11) £9,000
  Balance outstanding at fixed filing date (31/01/11) £1,000
  Further payment 28 February 2011 £920
  Total tax paid £9,920
  Balance outstanding when return filed £80
Return filed 1 October 2011 - fixed automatic penalties £200
 
No reduction in fixed automatic penalties as tax outstanding at 31/01/11 is £1000

Note: Capping does not apply to penalties charged because of late filing of a partnership return.

Taxpayers may appeal where a fixed automatic penalty has not been properly capped and the appeal should be accepted see subject ‘Appeals Against Fixed Automatic Penalties’ (SAM61060).

Note: It is important that where you realise that fixed automatic penalties have not been properly capped you take action to reduce the penalty as if the taxpayer has appealed - see Action Guide ‘Appeals Against Non-capping of FAP (SAM61063) in particular when considering enforcing a fixed automatic penalty you must check that the penalty has been correctly applied.

Setting and cancelling the Record Daily Penalties signal

Where a case has been sent to Tribunal to seek a direction for daily penalties (see subject ‘Daily Penalties: Procedures for Applying’ (SAM61090), the office responsible for Technical work sets the Record Daily Penalties signal.

Function AMEND FIXED PENALTIES should be used to set / unset the Record Daily Penalties signal.

Where this signal is present on the taxpayer’s record no further fixed automatic penalties will be charged (including the first penalty if this has not yet been imposed) - although those already charged will remain.

Where the Recovery Office refer a case to the office within your area responsible for Technical work for consideration of daily penalties they will record the details in SA Notes - see section ‘SA Notes (SAM108020).