Guidance on use of information and penalty powers

Guidance on use of information and penalty powers in instalment payments regulations

In a Press Release on 8 June 1999, the Inland Revenue published guidance explaining how the information and penalty powers in the Corporation Tax (Instalment Payments) Regulations 1998 (SI 1998 No 3175) will be used in Quarterly Instalment Payments cases. That guidance is reproduced here.

The guidance applies only to the information and penalty powers contained in the Instalment Payments Regulations. Other information and penalty powers are not affected.

Guidance on use of information and penalty powers in quarterly instalment payment cases

These guidance notes explain how the Inland Revenue will use the information and penalty powers in the Corporation Tax (Instalment Payments) Regulations 1998 (SI 1998 No 3175).

Use of information powers

The information powers are in regulations 10, 11 and 12 of the instalment payments regulations. They require a company to provide the Inland Revenue with information to support the payments made on the instalment due dates, or the lack of such payments, or to support a claim for repayment. They are described in more detail below.

Where companies file their returns by the statutory filing date, a review of the quarterly instalment payment (QIP) position will be undertaken at the same time as the review of the return. Information about the basis upon which QIPs have been estimated will not be sought as a matter of routine. Where the amounts paid on the instalment dates do not correspond to the amounts required under the regulations interest will be charged or paid accordingly. In cases where the Inland Revenue make a determination of the tax payable because a company has failed to file its return on time, the Inland Revenue also have the power to make a determination of the dates on which amounts should have been paid under the regulations.

The Inland Revenue will seek to make use of the information powers in regulations 10, 11 and 12 only where there are indications that a company may have deliberately or recklessly failed to comply with its payment obligations under the regulations, or fraudulently or negligently made a claim for repayment. In such a case, all the necessary evidence will be requested from the company in respect of its instalment payments (or absence of them) or claim. This will enable the Inland Revenue to establish the extent to which the company failed to pay in accordance with its most recent estimate of its total liability, and to form a judgement as to whether the company, or persons acting on its behalf, acted deliberately or recklessly in failing to make its payments as they fell due, or in later failing to correct the position as newer and more accurate information became available.

Application of penalty regulation

The penalty power is in regulation 13 of the instalment payments regulations. It provides for a penalty (under section 59E(4) Taxes Management Act 1970 (TMA)) of not more than twice the amount of interest charged in respect of the total liability of the company for that accounting period. Total liability includes liability to corporation tax, and tax under sections 419 and 747 ICTA 1988 (provisions dealing with loans by a close company to its participators, and controlled foreign companies, respectively).

The majority of cases of inadequate or late payments, or the miscalculation of a repayment, will involve only an interest charge:

• Inadequate payments: a penalty position will apply where there is evidence that the company failed to pay in accordance with its most recent estimate of its total liability, (including failing to make a top-up payment) or failed to pay the right amount at the right time. Such a failure by a company or by a person acting on its behalf must be more than negligent - it must be deliberate or reckless;
• Claims to repayment: a penalty will apply in respect of a claim to repayment under regulation 6 if the company or a person acting on its behalf has acted fraudulently or negligently;
• A penalty under section 59E(4) TMA will be sought in only the most serious cases involving flagrant abuse of the regulations. Before seeking a penalty the case must be submitted to Head Office for approval. The normal appeal rights of section 100B(1) TMA will apply to any such penalty.

Interest

New interest rates have been introduced for tax over- and underpaid during the instalment payments period. This is provided for in the Taxes (Interest Rate) (Amendment No 2) Regulations 1998 (SI 1998 No 3176). The new rules are more generous to companies than those that apply outside that period. The rates also have a smaller spread and are more sensitive to base rate movements than the ordinary rates. Interest on underpaid corporation tax is also deductible in arriving at a company's chargeable profits. The interest represents no more than compensation for the Exchequer's (or the company's) loss of use of the money.

Information powers

Regulation 10 of the Corporation Tax (Instalment Payments) Regulations (SI 3175 1998) requires a company to furnish information to the Board of Inland Revenue,
Regulation 11 requires a company to produce books, documents and other records in its possession or power, relating to

• the estimation of amounts paid in respect of the company's total liability for an accounting period in accordance with regulation 5 of SI 3175 1998;
• the non-payment of any amount in respect of the company's total liability for an accounting period in accordance with regulation 5 of SI 3175 1998, and
• a claim for repayment under regulation 6(2) SI 3175 1998.

Such details can be required within a period of not less than 30 days, by notice, at any time following the fixed filing date for the company.

In addition, regulation 12 requires a company to make available for inspection all such books documents and other records in its possession or power as could be required to be produced under regulation 11. Where such records are maintained by computer, the company must provide the officer making the inspection with all the facilities necessary for obtaining information from them.

Penalty

Regulation 13 provides for a penalty under section 59(E)(4) Taxes Management Act 1970 (TMA) where:

• a company, or a person acting on its behalf, deliberately or recklessly fails to pay the right amount on a particular instalment date in accordance with the regulations; or
• a company, or a person acting on its behalf, fraudulently or negligently makes a claim for repayment under the regulations;
• The amount of the penalty is a sum not exceeding twice the amount of interest charged in respect of the total liability of the company for that accounting period.