CH193500 - Penalty reform - penalties for failure to pay VAT on time from 1 January 2023: other penalty issues: exercise of discretion

Part 2 of Schedule 26 to the Finance Act 2021 is expressed in terms of strict liability, meaning that a penalty is payable in the specified circumstances where a person has failed to pay on time. See CH193100.

However, paragraphs 16(1) and 17(1) confer discretion on HMRC whether to assess that penalty, by stating that HMRC “may assess”.

In line with Parliament’s expectation, HMRC will ordinarily assess late payment penalties.

HMRC’s policy for the application of late payment penalties can include instances where these are not awarded or assessed despite a person being liable to them. This is achieved by exercising the statutory discretion conferred. HMRC will apply the statutory discretion given by the legislation only in particular cases where the circumstances merit it.

HMRC may also decide to exercise their discretion to not assess penalties in exceptional circumstances such as a national emergency.

The reasonable excuse and appeal provisions exist to provide a safeguard where individual circumstances affect a person’s ability to comply with their obligations.

The statutory discretion is wholly separate from appeals and reasonable excuse. If there are exceptional circumstances in which it would be appropriate to use the discretion in individual cases, operational caseworkers must obtain advice from the specialist technical team.