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HMRC internal manual

Specialist Investigations Operational Guidance

Settlement by agreement: consideration of penalties: penalty abatement - particular points

This instruction applies to penalties charged for periods earlier than those to which Sch 24 FA 2007 and Sch 41 FA 2008 apply. For Sch 24 and Sch 41, see the Compliance Handbook.

Generally penalties in SI cases should be computed using the guidance at EM6065 to EM6080. However some particular and additional matters recur in SI cases.

Whole period of investigation to be considered

If a case was a working investigation elsewhere in HMRC before SI intervention then the taxpayer’s conduct in the whole period must be taken into account when mitigation for disclosure and co-operation are considered. (For example - if a taxpayer has spurned several opportunities to make a disclosure to Local Compliance the abatement for disclosure should be reduced significantly even if a prompt disclosure is made on SI challenge).

Caution to be shown in relation to claimed voluntary disclosure

The instructions at EM6070 to EM6071 should be noted and also the advice at SIOG2000. We need to be confident, before the extra 10% abatement is given, that the taxpayer ‘has no reason to fear early discovery’ and has made an entirely spontaneous disclosure.

Link between ‘Disclosure’ and ‘Co-operation’

The concept of ‘disclosure’ includes the completeness of the disclosure and its timing. There is therefore a link with the degree of ‘co-operation’. EM6065 makes clear that each factor should be considered separately. The taxpayer’s conduct at the opening meeting and subsequently needs to be taken into account for both disclosure and co-operation.

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Conduct of taxpayer at the opening Code 9 meeting

The taxpayer who makes a formal, followed by a true comprehensive narrative disclosure at a Code 9 opening meeting is entitled to a greater abatement for both disclosure and co-operation than one who does not.

Advisers may argue that a deferred formal disclosure response and no general explanation at all before the disclosure report should still potentially merit maximum abatement for disclosure and co-operation. They may argue that HMRC’s position is not prejudiced if a full but delayed disclosure is made.

Each case should be considered on its merits but the proposition should not be accepted in principle. Sometimes our position is prejudiced if we do not get an immediate comprehensive disclosure (for example - we may not be alerted to the actions of other taxpayers, we may get an inadequate payment on account, and so on). But the fundamental point is that the Commissioners of Revenue and Customs abatement policy, applicable to all taxpayers, is to reward promptness of disclosure.

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Action of advisers during SI investigation

When a taxpayer appoints an adviser the taxpayer is still responsible for ensuring that their taxation obligations, including the requirements of an SI investigation, are discharged. Delay, poor work, and so on by an adviser will reduce the abatement for co-operation and possibly for disclosure as well.

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Seriousness distinguished from Disclosure and Co-operation

A taxpayer who has been dishonest can still obtain maximum abatement for disclosure and co-operation, where matters are to be settled with civil penalties, if everything possible is done to assist the SI investigation.

What cannot be altered is the seriousness of what may already have occurred.

Most disagreements over penalties in SI cases are to do with mitigation for seriousness. EM6080 explains that seriousness contains the elements of ‘size’ and ‘gravity’. It goes on to indicate that in fraud cases abatement for seriousness should not normally exceed 15% and for cases of the most serious fraud - specifically referring to the kind of case that may be dealt with by SI - the abatement should be restricted whatever the size of the omissions.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

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Seriousness: non-extractive cases

Non-extractive cases can contain serious fraud. Not infrequently we may face a difficulty in showing (if we had to support a penalty determination against an appeal) the same seriousness of intent and personal gain that is more readily apparent in extractive cases. The seriousness abatement in a non-extractive case may be up to 10% more than in an extractive case.

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‘Layering’ of penalties

The culpable tax relating to each offence should be identified and the abatement applied separately, though in seeking the offer the penalty should be expressed as a global sum. The instructions at EM6060 should be followed.