Penalties

The penalties for failing to comply with HMRC’s information and inspection powers are to be found in FA 2008, Sch. 36, Part 7. Penalties can be charged under these provisions for:-

  • Failing to comply with an information notice
  • Deliberately obstructing an inspection that was approved by the Tribunal
  • Concealing, destroying or disposing of documents

The penalties under Part 7 are:-

  • A standard penalty of £300 for failing to comply with an information notice or deliberately obstructing an inspection
  • A daily penalty of £60 for every day that failure or obstruction continues after a standard penalty has been charged
  • A tax related penalty after a standard penalty has been charged.

Para. 47 provides a right of appeal against the standard and daily penalties, against either:-

  • The decision to charge a penalty
  • The amount of the penalty

A defence of reasonable excuse is provided by para. 45 against the imposition of a standard or daily penalty.

The provisions of Part 8 make it a criminal offence to conceal, destroy or dispose of documents that are subject to an information notice approved by the Tribunal. The person guilty of the offence under Part 8 is liable for a fine or imprisonment.

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Assessments and Appeals

The provisions for assessing and enforcing standard and daily penalties are included in FA 2008, Sch. 36, para. 46 and 49. Appeals against standard and daily penalties are dealt with in para. 48. There is no appeal against a tax-related penalty.

Assessment of Standard and Daily Penalties

A penalty assessment for standard or daily penalties cannot be made more than 12 months after the relevant date. The relevant date is defined by para. 46 (3) as:-

In a case involving an information notice against which a person may appeal, the later of:

  • The end of the period in which notice of an appeal against the information notice could have been given and
  • If notice of an appeal against the information notice is given, the date on which the appeal is determined or withdrawn, and
  • In any other case, the date on which the person became liable to the penalty.

The penalty assessment notice must show:-

  • The date of the assessment
  • The legislation under which the penalty is charged
  • What led to the penalty
  • If appropriate the period the penalty relates to

A penalty assessment for a daily penalty must show:-

  • The period it relates to
  • The number of days
  • The amount of the daily penalty
  • The total penalty

The penalty must be paid within 30 days of the later of:-

  • The date the notice was issued if an appeal is not made
  • The date any appeal is determined or withdrawn

It can be enforced as if it were income tax charged in an assessment.

Appeals against Standard and Daily Penalties

A person can appeal to the Tribunal against:-

  • The imposition of a standard or daily penalty and
  • The amount of the daily penalty

The appeal must:-

  • Be addressed to HMRC in writing
  • Reach them within 30 days from the date on which the penalty assessment was issued
  • State the grounds of appeal

If the appeal is not settled by agreement it will be heard by the Tribunal, which can:-

  • Confirm or cancel the penalty
  • Confirm the amount of the penalty or substitute another amount

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Criminal Offence

FA 2008, Sch. 36, para. 53-55 provide for concealing, etc. documents to be treated as a criminal offence. Under these provisions it is a criminal offence if:-

  • A document is concealed, destroyed or disposed of when the person knows that it is the subject of an information notice approved by the Tribunal or
  • The person has received written notice that the document is, or is likely to be, the subject of an information notice for which HMRC intends to seek the approval of the Tribunal.

This is subject to the conditions under which a person is permitted to destroy a document.

A person who is guilty of an offence under para. 53 will be liable:-

  • On summary conviction to a fine not exceeding the statutory maximum or
  • On conviction on indictment, to imprisonment to a term not exceeding two years or to a fine, or both.

Daily Penalty

If a standard penalty has been charged a daily penalty can be charged for every day the failure or obstruction continues after the standard penalty has been charged.

The amount of the daily penalty fixed by FA 2008, Sch. 36, para. 40 is an amount not exceeding £60 for each day the failure or obstruction continues.

HMRC accept that if a person has destroyed or disposed of a document it would be inappropriate to charge a daily penalty. However, if they think that the standard penalty does not provide a sufficient penalty, they will consider charging a tax-related penalty.

HMRC will also consider charging a tax-related penalty if they think that the daily penalty is insufficient.

A daily penalty will be charged at regular, short intervals to encourage compliance and to prevent the amount becoming substantial. Officers are instructed that no daily penalty should be charged in respect of the period from the date of the last imposition of the daily penalty until the date the compliance check is completed or the document was provided.

When deciding the amount of the penalty HMRC will take account of:-

  • The amount of tax that appears to be at stake
  • The nature and extent of any obstruction
  • The nature and extent of the information and documents requested
  • The problems facing the person in obtaining all the information and documents
  • The degree of cooperation given to date
  • The person’s general compliance history

They will keep a record of their reasons for deciding the amount of the penalty to defend it in any appeal proceedings.

Destroying Documents

If an officer has informed a person that a document is, or is likely to be the subject of an information notice addressed to them, that person will be liable for a penalty if they conceal, destroy or otherwise dispose of it (or arrange for any of these things to be done).

Unless they are obliged to retain the document, a person can destroy it:-

  • After it has been produced in compliance with an information notice, unless they have been told it must be retained for a future check (FA 2008, Sch. 36, para. 42 (2))
  • Six months after they were told it would be required in an information notice but it was not required (para. 42 (2))
  • Six months after providing a copy in compliance with an information notice if they have not been asked in writing to produce the original (para. 42 (3)).

Information Notices

A penalty is chargeable if a person fails to comply with an information notice if they have not provided the information or produced the documents required by the date given in the notice, or in such further period of time as the officer has agreed (FA 2008, Sch. 36, para. 44). This is subject to any possible defence of reasonable excuse.

If the notice is partially complied with, the decision on whether to charge a penalty depends on whether the missing information is significant or if the compliance check can be completed without it. If appropriate, practitioners should draw the officer’s attention to the fact that the information provided is sufficient for the purposes of the check and that the missing information adds nothing of value.

Where the practitioner considers that the notice breaches the restrictions they should draw the matter to the attention of the officer, who may decide to withdraw the notice.

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Inspections

Subject to any possible defence of reasonable excuse, a person who deliberately obstructs an inspection that has been approved by the Tribunal is liable for a penalty. The obstruction must be deliberate and would include:-

  • Refusing to agree a visit or constantly cancelling the arrangements
  • Refusing entry
  • Refusing to provide information about the premises, assets and documents that can be inspected
  • Putting obstacles in the way of the inspection designed to delay it or make it more difficult.

A penalty can only be charged if the person knows that the inspection has been approved by the Tribunal. The officer must, therefore, have handed the occupier a notice of inspection at the start that makes it clear that Tribunal approval has been given.

No penalty can be charged if the obstruction is not deliberate – for example if a family crisis means that the inspection has to be curtailed.

It should be noted also that the inspection continues until the officer notifies the occupier that it has finished. If it is incomplete at the end of the day the officer can return on the following day to complete it.

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Reasonable Excuse

No offence is committed and no penalty can be charged if the person satisfies HMRC (or the Tribunal on appeal) that they:-

  • Had a reasonable excuse for failing to comply with a notice or obstructing an inspection and
  • They remedied the failure, or the obstruction stopped, without reasonable delay after the excuse had ceased.

Although FA 2008, Sch. 36, para. 45 provides no definition of reasonable excuse, HMRC have given the following guidance on what would be considered a reasonable excuse.

‘A reasonable excuse is normally an exceptional event that is beyond the person’s control in the particular circumstances relating to compliance with the notice or the obstruction.

Some examples of what could be a reasonable excuse are:-

  • A loss of records through fire, flood or theft
  • Serious illness
  • Bereavement
  • A computer breakdown
  • A loss of key personnel
  • An unexpected cash crisis
  • Unavoidable delays beyond the person’s control

An excuse will not necessarily be accepted just because it seems to fit into one of these categories. It depends on the individual circumstances of each case.’

Para. 45 states that there is no reasonable excuse for the failure or obstruction due to:-

  • An insufficiency of funds, unless this is attributable to events outside the person’s control – for example the sudden insolvency of a customer who owes a large amount of money
  • Reliance on a third party, unless the person took reasonable care to avoid the failure or obstruction – for example the person continues to press their bank for statements but, due to the bank’s delay despite the person’s best efforts, has to ask to postpone an inspection until the statements have been received.
HMRC have given the following circumstances in which they will not accept that the person has a reasonable excuse.

‘There are some situations which we will not normally accept as a reasonable excuse.

  • Doing nothing because of a lack of understanding. The person should ask HMRC if they are uncertain of what they need to do or should find out from another source.
  • Pressure of work. We expect the person to make time to meet their legal obligations.
  • Assembling information or finding documents or assets is too difficult. We expect a person to get whatever help they need to complete the task.
  • HMRC did not remind me. The person should do what they are required to do without being reminded.

What is or is not a reasonable excuse is personal to the individual’s abilities and circumstances. Those abilities and circumstances may mean that what is a reasonable excuse for one person may not be a reasonable excuse for another.’

For expert advice for your HMRC tax investigation call KinsellaTax on 0800 471 4546 TODAY.

Standard Penalty

FA 2008, Sch. 36, para. 39 sets the standard penalty at £300. This must be charged before a daily penalty or a tax-related penalty can be charged.

A person will be liable for a standard penalty if they:-

  • Fail to comply with an information notice
  • Deliberately obstruct an officer in the course of an inspection that has been approved by the Tribunal.

In accordance with para. 39 (3), failing to comply with a notice includes concealing, destroying or disposing of a document:-

  • The production of which has been required by an information notice
  • That the person has been notified is, or is likely to be, required by an information notice.

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Tax Related Penalty

Daily Penalty

If a standard penalty has been charged a daily penalty can be charged for every day the failure or obstruction continues after the standard penalty has been charged.

The amount of the daily penalty fixed by FA 2008, Sch. 36, para. 40 is an amount not exceeding £60 for each day the failure or obstruction continues.

HMRC accept that if a person has destroyed or disposed of a document it would be inappropriate to charge a daily penalty. However, if they think that the standard penalty does not provide a sufficient penalty, they will consider charging a tax-related penalty.

HMRC will also consider charging a tax-related penalty if they think that the daily penalty is insufficient.

A daily penalty will be charged at regular, short intervals to encourage compliance and to prevent the amount becoming substantial. Officers are instructed that no daily penalty should be charged in respect of the period from the date of the last imposition of the daily penalty until the date the compliance check is completed or the document was provided.

When deciding the amount of the penalty HMRC will take account of:-

  • The amount of tax that appears to be at stake
  • The nature and extent of any obstruction
  • The nature and extent of the information and documents requested
  • The problems facing the person in obtaining all the information and documents
  • The degree of cooperation given to date
  • The person’s general compliance history

They will keep a record of their reasons for deciding the amount of the penalty to defend it in any appeal proceedings.

Double Jeopardy

If a person is convicted of a criminal offence under Part. 8, they cannot also be charged a standard, daily or tax-related penalty (para. 52).

Tax-Related Penalties

Enforcement of a tax-related penalty is dealt with in para. 51. it must be paid within 30 days of the date the penalty was notified and it can be enforced as if it were income tax charged in an assessment.

There is no provision for appealing against a tax-related penalty.

For help and advice call KinsellaTax on 0800 471 4546

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