Guidance

Information about compliance checks for Self Assessment and old penalty rules — CC/FS15

Updated 22 March 2022

This factsheet tells you about old penalty rules and when they apply.

Every year we carry out checks to make sure that our customers are paying the right amount of tax at the right time and receiving the right allowances and tax reliefs. You can find more information about compliance checks in our other factsheets.

For the full list of factsheets in our compliance checks series go to www.gov.uk and search ‘Compliance checks factsheets’.

If you need help

If you have any health or personal circumstances that may make it difficult for you to deal with this check, please tell the officer that’s contacted you. We’ll help you in whatever way we can. For more details, go to www.gov.uk/get-help-hmrc-extra-support

You can also ask someone else to deal with us on your behalf, for example, a professional adviser, friend or relative. We may however still need to talk or write to you directly about some things. If we need to write to you, we’ll send a copy to the person you’ve asked us to deal with. If we need to talk to you, they can be with you when we do, if you prefer.

Why you have been given this factsheet

We’ve given you this factsheet because we are checking a Self Assessment return for a period before our new penalty rules started. This means that we may charge you a penalty under our old penalty rules.

The new penalty rules are for:

• errors in tax returns that cover a period commencing on or after 1 April 2008 if the tax return was due to be sent to us on or after 1 April 2009
• failures to notify liability to tax that happened after 1 April 2010

You can find more information about these new rules in factsheet CC/FS7a, ‘Penalties for inaccuracies in returns or documents’ and factsheet CC/FS11, ‘Penalties for failure to notify’. You can get copies of these factsheets online. Go to www.gov.uk and search ‘Compliance checks factsheets’.

This factsheet explains the old Self Assessment penalty rules that apply to earlier periods. But if we are also checking a tax return for a period covered by our new penalty rules, we may charge you penalties under both the old and the new rules. For each tax return we would only charge either the old or the new penalties — not both.

When you may have to pay a penalty

You may have to pay a penalty if an error in your tax return means that:

• you under-declared, or over-claimed tax
• you failed to tell us that you were liable to pay tax and did not pay the right amount of tax at the right time

We can charge you a penalty if the error or failure happened because of your neglect or fraud.

Although penalties under the new rules may be suspended, penalties under the old rules cannot.

Customers with particular needs

If there was anything about your health or personal circumstances that contributed to your error or failure please tell the officer that is carrying out the check. Telling them will mean that they can take this into account when considering penalties.

How we work out the amount of the penalty

The penalty will be a percentage of:

• the difference between any tax that you under-declared or over-claimed and the correct amount of tax
• the tax you paid late because of your failure

We will work out the penalty by starting with the maximum penalty. This is 100% of the tax.

How you can reduce any penalty we may charge

The amount we can reduce the penalty by will depend on:

• disclosure — whether you tell us everything we need to know about your tax affairs
• co-operation — how well you co-operate with us throughout the compliance check
• seriousness — the overall seriousness of the errors in your tax return or the failure to notify us about your liability to pay tax

The more you help us to get your tax affairs up to date the larger the reduction may be to the penalty.

Disclosure

We can normally reduce the penalty by up to 20% for disclosure. But if you make a full disclosure to us before you had any reason to believe we would find out about it, we can reduce the penalty by up to 30%.

If you make a full disclosure when we first start our compliance check we may still give you a considerable reduction. If you do not tell us that anything is wrong until near the end of the check, we will give you very little or no reduction for disclosure. The size of the reduction will depend on the individual circumstances.

When we work out the reduction, we’ll also consider how long it’s taken you to tell us about anything that’s wrong.

We consider the earliest date you could have told us about what was wrong to the actual date you did tell us. If it’s taken you a long time, (such as 3 years or more), to tell us, we’ll restrict the reduction for disclosure by 10 percentage points.

Co-operation

We can reduce the penalty by up to 40% for good co-operation. Examples of good co-operation can include:

• letting us have the information we need quickly
• agreeing to meet us if we believe this will help us with our check
• answering our questions as fully and correctly as possible
• making a payment towards anything you owe us before we have calculated the final figure — we call this a ‘payment on account’

If you delay giving us the information we need or give us misleading answers and generally obstruct our check, we’ll give you little or no reduction for co-operation.

Seriousness

We can reduce the penalty by up to 40% depending on the overall seriousness of the errors or failures.

The size of the reduction we can give will depend on:

• what you did to get things wrong
• the reasons why you got things wrong
• how long you continued to get things wrong
• the amount of money involved

If, through negligence, you made a straightforward error involving a modest amount of tax, we may give you a considerable reduction.

If you deliberately tried to evade tax, we’ll give you little or no reduction for seriousness.

Interest and surcharges for paying tax late

If you pay any tax after the original date it was due, we will charge you interest. You may also have to pay a late payment surcharge. When we are considering both a penalty and a late payment surcharge on the same amount of tax, we will either charge you the surcharge or the penalty, not both.

What happens at the end of a check

We will finish our check by:

• sending you one or more closure notices, tax assessments and penalty determinations
• agreeing a contract settlement with you

A contract settlement is a legally binding agreement, where you offer to pay the tax, interest and penalties due as a result of our check, and we agree not to use our formal powers to recover those amounts.

You can only pay through a contract settlement if both you and we agree to this, and to the terms of the contract.

If you cannot pay what you owe

If you think you may have problems paying, please tell the officer dealing with the check straightaway.

If you disagree

If there’s something that you do not agree with, please tell us.

If we make a decision that you can appeal against, we’ll write to you about the decision and tell you what to do if you disagree. You’ll usually have 3 options. Within 30 days, you can:

• send new information to the officer dealing with the check and ask them to take it into account
• have your case reviewed by an HMRC officer who has not been involved in the matter
• arrange for an independent tribunal to hear your appeal and decide the matter

Whichever you choose, you may also be able to ask for an HMRC specialist officer to act as a neutral facilitator to help resolve the dispute. We call this Alternative Dispute Resolution (ADR).

ADR is only available for disputes that relate to particular tax areas. The officer dealing with the check will tell you if ADR is available for your dispute. For more information about appeals and ADR, read factsheets:

• HMRC1, ‘HM Revenue and Customs decisions — what to do if you disagree’
• CC/FS21, ‘Alternative dispute resolution’

go to www.gov.uk and search for ‘HMRC1’ or ‘CC/FS21’.

Your rights when we are considering penalties

The European Convention on Human Rights gives you certain important rights. If we are considering penalties, we will tell you. We will also tell you that these rights apply and ask you to confirm that you understand them.

These rights are that:

• if we ask you any questions to help us decide whether to charge you a penalty, you have the right not to answer them — the amount of help that you give us when we are considering penalties is entirely a matter for you to decide
• when deciding whether to answer our questions, you may want to get advice from a professional adviser — particularly if you do not already have one
• if you disagree with us about the tax or any penalties we believe are due, you can appeal — if you appeal about both tax and penalties, you have the right to ask for both appeals to be considered together
• you have the right to apply for funded legal assistance for dealing with any appeal against certain penalties
• you are entitled to have the matter of penalties dealt with without unreasonable delay

You can find full details about these rights in factsheet CC/FS9 ‘The Human Rights Act and penalties’. Go to www.gov.uk and search ‘CC/FS9’.

What happens if you give us information that you know to be untrue

If you:

• give us information that you know to be untrue, whether verbally or in a document
• dishonestly misrepresent your liability to tax or claim payments to which you are not entitled

we may carry out a criminal investigation with a view to prosecution.

Checks that this factsheet relates to

This factsheet relates to checks into:

• Capital Gains Tax
• Corporation Tax
• Income Tax
• National Insurance Class 4

Our privacy notice

Our privacy notice sets out the standards that you can expect from us when we ask for information or hold information about you. Go to www.gov.uk and search for ‘HMRC Privacy Notice’.