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HMRC internal manual

Self Assessment Manual

Interest, penalties and surcharge: penalties: cancelling a penalty for 2010-11 returns onwards

Cancel penalties

Function VIEW/CANCEL PENALTIES is used when you need to cancel a penalty. You may need to do this when

  • An appeal has been settled
  • Where a return is logged after a penalty(s) has been imposed but the logging is backdated to 31 October (or, exceptionally, 31 January)
  • When you accept that the original return was not properly served and a penalty(s) has already been imposed

Notes:

1. If you do cancel a late payment penalty this will not be shown on VIEW STATEMENT. However if you need to confirm that the penalty has been cancelled, this can be seen on the VIEW/CANCEL PENALTIES screen.
   
2. In addition to any penalties already issued to the customer being displayed on the VIEW/CANCEL Penalties screen, any late filing fixed penalties, daily penalties and/or tax geared penalties that have not been charged yet (for example, because the customer is RLS) will also be shown. These can be identified because they will not have a date displayed.

Cancellations should be recorded using the appropriate cancellation code from the list below:

1 Incorrect Logging
   
2 Duplicate Record
3 Cessation
4 Reasonable Excuse
5 Other

In the last scenario you should cancel the penalty before reissuing the return using function RECORD RETURN REQUEST, or RECORD DATE OF CLERICAL ISSUE where the return is reissued manually.

As a number of penalties can be charged where a tax return is received late you may need to consider cancelling more than one penalty. For example

First late filing (tax geared) penalty is raised for £600

Second late filing (tax geared) penalty is raised for £600

Appeal is received and accepted against both penalties so you will need to cancel each penalty individually

Note: Once a penalty is cancelled it will not be revisited by the system.

Example

First late penalty was raised for £500

Second late penalty was raised for £500

If the first penalty was cancelled and there was an increase to the liability for that tax year, a further first late filing penalty would not be raised. However a further second late payment penalty would be raised. A third late payment penalty may later be raised if tax is still unpaid for the tax return year 30 days plus 11 months after the payment due date.

Cancelling penalties of the same penalty type

It is possible to have more than one of a particular penalty type.

For example:

A £300 6 month late filing penalty is raised because the return is outstanding.

A further £200 6 monthly late filing penalty is raised when the return is received.

Total tax due for year £10,000 x 5 per cent = £500, initial penalty charged £300 so an additional penalty is due of £200.

If only one penalty needs cancelling, you must ensure that you cancel the correct penalty.

Partnership cases

If you wish to cancel any partnership penalties, you will need to do so through the partnership record and not the records of the individual partners. You will have the option to cancel a penalty for all partners in a partnership or, alternatively, you can cancel a penalty for just one partner by entering the UTR of the specific partner. Where you have cancelled a penalty on all partners in a partnership, the system will then automatically cancel the penalties on the individual partner’s records overnight. However, if just cancelling a penalty on one partner within a partnership, the system will automatically cancel the penalty on the individual partner’s record immediately.

If a case has been selected for the issue of a late filing penalty (fixed penalty, daily penalty or late filing (tax geared) penalty), and the customer is RLS, the penalty cannot be issued until a new address is obtained. Once a new address has been obtained the penalty will be viewable using the VIEW/CANCEL PENALTIES function, and can be identified as awaiting issue as there will be no ‘issued date’ shown. It is possible therefore to cancel that penalty, before it is issued, if the penalty has been issued in error.

Re-charging a penalty

Once a particular penalty has been cancelled you will not be able to re-charge that particular penalty. However, if you later identify that the penalty should be charged, for example it was cancelled in error, you will need to use function CREATE SUNDRY CHARGE to apply a miscellaneous penalty charge to the record. If more than one penalty should be charged, you will need to create separate miscellaneous penalty charges on the record.

For further information see ‘Cancelling a penalty for tax years 2010-2011 onwards’ (Action Guide), SAM61261.