CISR65170 - Late Return Automatic Penalties: Mitigation under TMA70/S102

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HMRC has a wide discretionary power to mitigate (or reduce) any penalty. This power is contained in TMA70/S102 and is delegated to the Assistant Director in Central Policy - Tax Administration Advice (TAA), (see EM5310).

HMRC’s longstanding policy is to only consider mitigation when the penalty has been determined and the taxpayer has exhausted (or abandoned) all appeal rights and the error has been remedied or corrected.

Normally, all requests for mitigation would have to be referred to TAA. However, from November 2010, TAA agreed to delegate authority to mitigate CIS penalties issued under TMA1970/S98A to certain officers at the CIS Centre, Newcastle, the Appeal Review Unit, Londonderry and the CIS Functional Lead Team, for compliance cases.

The delegated authority only allows for a comparison between the CIS penalties issued under TMA70/S98A and what would have been charged had the legislation at FA09/SCH55 been in place when the CIS penalties were issued. If the penalties under FA09/SCH55 would have been less, the TMA70/S98A penalties can be mitigated to the lesser amount under TMA70/S102.

Mitigation under TMA1970/S102 is offered in the following circumstances;

  • On request, in writing by the contractor to the CIS Centre, Newcastle.
  • Following an appeal by the contractor against a CIS penalty issued under TMA70/S98A, the CIS Centre, Newcastle, or Compliance officer will look back to 6th April 2007 to see if any CIS penalties issued under TMA70/S98A would be less under FA09/SCH55 and if so can offer to reduce the penalties under TMA70/S102.
  • Following a request for an internal review of an appeal by the contractor against a CIS penalty issued under TMA70/S98A the review officer will look back to 6th April 2007 to see if any CIS penalties issued under TMA70/S98A would be less under FA09/SCH55 and if so can offer to reduce the penalties under TMA70/S102.
  • Where an appeal is determined in favour of HMRC by the tribunal against a CIS penalty issued under TMA70/S98A, the Appeal Review Unit (ARU), Londonderry, or Compliance officer will look back to 6th April 2007 to see if any CIS penalties issued under TMA70/S98A would be less under FA09/SCH55 and if so can offer to reduce the penalties under TMA70/S102. In these circumstances if mitigation under TMA70/S102 has been offered previously, the ARU will simply put the mitigation into place and confirm with the contactor that they have done so.

Further mitigation under TMA70/s102

The delegated authority only allows you to mitigate TMA70/S98A penalties to the FA09/SCH55 amount. If the contractor does not accept the mitigation already offered under this process and makes a request for further mitigation of the CIS penalties, this will need to be referred immediately to the CIS Functional Lead Team (CISFLT) using the local area contact (see the CIS Intranet) closest to the contractors business address.

The CISFLT will need to make a submission to Central Policy - Tax Administration Advice (TAA). Before making a referral, the CISFLT will need to ask the contractor to write explaining their grounds for further mitigation and to provide supporting evidence, they will also point out to the contractor that by making such a request the contractor will either;

  • have already exhausted their appeal rights, or
  • abandoned their appeal rights

as there is no right of appeal against a decision made as to whether or not mitigation under TMA70/S102 of CIS penalties issued under TMA70/S98A will be granted.

If the further grounds include genuine and absolute hardship the contractor should be asked by the CISFLT to provide financial evidence to support the claim. This evidence should include, but is not restricted to, the following items from the contractor’s business;

  • a copy of the latest financial accounts
  • any other draft accounts
  • any business plans
  • any cash flow projections
  • copies of bank statements for all bank accounts for the latest 6 months
  • projected income and expenditure
  • details of all business assets and liabilities.

Where the contractor is a sole proprietor you should amend the last 3 bullet points to say the following;

  • details of personal income and expenditure at the current date
  • copies of bank statements for all business and personal bank accounts for the latest 6 months
  • details of all current business and personal assets and liabilities (including mortgage details and the value of any endowments or other investments)

Where the contractor is a partnership, each partner should be asked to provide copies of their personal bank statements and details of personal assets and liabilities

Note: the above list is not exhaustive and it may be appropriate to ask for further / other information. You may find the following guidance useful when considering what information you should ask the contractor to provide - DMB802100, DMBM802120, DMB802130, COG914550 and EM6214.

The submission from the CISFLT to TAA must set out all of the relevant evidence in support of the request. The reasons for mitigation may fall into the following categories;

  • Where some sort of HMRC error, usually delay, has caused or contributed to the size of the CIS penalty. If delay and/or lack of co-operation by the contractor have caused HMRC additional costs that will weigh against the mitigation claim.
  • Where enforcing payment of the penalty would cause the contractor genuine and absolute hardship.
  • Other exceptional circumstances such as the CIS penalty or penalties being wholly disproportionate to the offence.

Once TAA have considered the further mitigation request under TMA70/S102, then they will write to the contractor to inform them of the result. The papers will then be passed back to the CISFLT who will write to the contractor to inform them of the next steps. The CISFLT will then pass the papers back to the CIS Centre, ARU Londonderry or Local Compliance as appropriate to take the following action;

  • Claim for further mitigation under TMA/S102 not accepted - file the papers
  • Claim for further mitigation under TMA/S102 accepted - put the mitigation into place using the Personal Tax (PT) Operations, or Local Compliance guidance on the CIS Intranet, as appropriate.

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Procedure once a claim under TMA70/S102 is authorised

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