Introduction: What are civil penalties
Please refer to the Compliance Handbook if you require guidance about penalties such as inaccuracy penalties, failure to notify penalties or VAT & Excise wrongdoing penalties.
In the early 1980s, the independent Keith Committee recognised poor trader compliance and considered that the then existing criminal sanctions were ineffective. The Committee recommended a range of civil penalties and these were progressively introduced to provide the current civil penalty regime, set out in Part IV of the VAT Act 1994.
Civil penalties were introduced to improve taxpayer compliance and statistical evidence suggests that they have been much more effective than the previous criminal regime. They are compliance tools and exist, in the main, to deter non-compliance.
When considering imposition of a penalty
There are 4 things you should take into account when considering imposition of a civil penalty when a liable person fails to comply.
The following three bullets should be followed before you notify any civil penalty, and at the review stage of any formal or informal appeal. It is important that in any appeal case you can show proper consideration has been given to each of them. They are
- establishing the liability and determining if there is any reasonable excuse. Many penalties have a reasonable excuse provision and where a reasonable excuse exists there is no liability to penalty.
- quantifying the liability. If a liability exists it should be quantified and here mitigation can be given in many of the penalties to allow you to take reasonable account of extenuating circumstances.
raising an assessment. HMRC has discretion whether or not to assess any penalty, interest or surcharge. In exercising discretion you must
- maintain equity in the application of civil penalties
- take full account of the circumstances of the particular case, and
- remain focused on the fundamental objective of civil penalties, which is to encourage compliance.
- notifying the assessment. Where an assessment is made it must be notified as set out in the detailed guidance for each penalty.