EM5208 - Penalties: formal assessments and determinations: transparency and HRA

The Human Rights Act demands total transparency and clear explanations to the taxpayer of everything we do in connection with penalties, see EM5220 and the latter part of EM6002.

By the time you make a submission to your Authorising Officer to authorise the penalties, see EM5201, you should have told the taxpayer about

  • their rights when there is reason to believe that a penalty may be due, by issuing the HRA message, see EM1362
  • the irregularities you have found and the additional liabilities to tax/NICs etc arising
  • the interest that follows automatically on late payment of the liabilities
  • the offences that have been committed, which mean that you are now considering penalties
  • the way in which penalties under FA07/SCH24 and FA08/SCH41 are reduced for the type and quality of disclosure, see CH82400+
  • HMRC’s policy of seeking an agreed settlement by exchange of letters of offer and acceptance, creating a legally binding contract; and our policy that where agreement cannot be reached we will assess the tax and any penalties.
  • the Board’s policy of calculating the appropriate amount under TMA70/S100(1) by applying the abatement percentages (EM6050+) to, usually, the culpable tax, NICs etc, when the taxpayer is liable to these penalties. This would include sending them factsheet CC/FS15.

You should also make sure the taxpayer is fully aware of the penalty position and what happens next. For penalties under FA07 and FA08, you should record this on the Penalty Decision Action Checklist (PDCA). If other penalties are involved you should record this in the case papers.

Depending on what progress has been made towards reaching an agreed settlement you may already have explained the abatements or reductions and appropriate net penalty loading you are considering. You should not suggest that if the taxpayer refuses to make an acceptable offer you will seek a higher penalty. The taxpayer has the right to follow the statutory procedure and should not be penalised for doing so. This, like a genuine reasoned dispute about culpability, should not to be interpreted as lack of co-operation. If however there are significant delays in communicating this view or in progressing the enquiry to a formal conclusion, you will need to take this into account.