CCM10090 - Penalties and Interest: Incorrect Claims – Challenged by HMRC – Enquiries or Examinations Opened on or before 5 April 2008

A challenge by HMRC - this is a Section 14, Section 15 or Section 16 examination or a Section 19 enquiry which results in a Section 31(1) penalty being imposed either formally or in a letter of offer.

If an examination/enquiry covers two or more years it still counts as one challenge. For example a Section 19 enquiry is carried out for 2004/2005 and as a result 2003/2004 is also revised. The eventual settlement, which includes penalties, covers both years and counts as one challenge. However, there will now be two penalties of a maximum of £3,000. CCM10110 contains some penalty examples.

If in the same case a Section 16 examination for 2005/2006 is opened later in the year and this leads to a penalty then it will be treated as a second challenge by HMRC. There can be more than one successful challenge per year if there has been more than one examination or a settled examination followed by an enquiry. In these circumstances each challenge will count separately.

The relatively small amount of the penalty for first offences reflects our desire to be an enabling department. We want to encourage people to get things right for the future and whilst an offence might not entirely escape a penalty we will take a much more serious view of repeat offences. At the end of an examination or enquiry which leads to a penalty the claimant(s) will be warned of the potentially much higher penalty for a future incorrect claim.

A previous challenge does not include one solely relating to a failure to notify a change of circumstances.