CH83040 - How to Process the Penalty: Raising a Penalty Assessment: When you must tell the person of the penalty

This guidance applies to returns and documents with a filing date on or after 1 April 2009 where the return covers a tax period beginning on or after 1 April 2008 seeCH81011for full details.

Normally you should issue the penalty assessment to the person when the inaccuracy that gave rise to the penalty is put right. (This reflects future legislative intention to be enacted in 2008.)

But a penalty assessment does not have to be made at the same time as the inaccuracy it refers to is put right. It may be made up to 12 months after either

• the end of the period during which a person can appeal against our correction of an inaccuracy, or
• when a person has appealed against the correction of an inaccuracy, the time when the appeal is finally decided or the person withdraws it.

Where a person puts right the inaccuracy before we have discovered it, for example by an amendment to an SA return, you must tell the person about the penalty by sending a penalty assessment within 12 months of the correction.

Where there is no assessment needed to put right the inaccuracy you must tell the person of the penalty within 12 months of the date on which the inaccuracy is put right.

An example of this in direct taxes might be where a reduction in a loss claim does not reverse the entire loss, there is still no tax to pay, but a penalty is nevertheless payable.

For indirect tax a correction may be made by putting right a repayment return through a credibility check where a tax assessment is not issued.

A contract settlement following a compliance check is equivalent to raising a penalty assessment.