CH192440 - Penalty Reform – penalties for failing to file VAT returns by due date for periods from 1 January 2023: other penalty issues: exercise of discretion

Paragraphs 5 and 15 of Schedule 24 to the Finance Act 2021 are expressed in terms of strict liability, meaning that a person is liable to a penalty point or financial penalty in the specified circumstances where they have failed to submit on time. See CH192140 and CH192260.

However, paragraphs 6(1) and 16(1) confer discretion on HMRC whether to award that penalty point, and to assess that financial penalty, by stating that HMRC ‘may award” or “may assess”.

In line with Parliament’s expectation, HMRC will ordinarily award late submission penalty points and assess late submission and late payment penalties.

HMRC’s policy for the application of late submission penalty points and financial 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 award penalty points and assess financial 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.