ECH22019 - Settlement: Culpability and Penalties

It is important to understand that HM Revenue & Customs cannot just 'take penalties'. The Department must have the legal authority to do so.

This means ECOs cannot just declare to an employer or contractor 'penalties are due' without first establishing culpability ECH22018.

To be able to seek a penalty the ECO must

• identify either

(more information about the two basic types of offence is contained in ECH21005).

• identify the TMA or other provision under which the offence can be penalised and
• for a tax or NICs geared penalty, quantify the liability which has gone unaccounted for because of the employer's or contractor's default.

For failure penalties this means the ECO must

• establish that the employer or contact has no 'reasonable excuse' for lateness, see ECH21035.

For error penalties this means the ECO must

• establish that the employer or contractor submitted an incorrect return fraudulently or negligently, see ECH21050.

It is important to question the employer or contractor in order to establish the reasons for the failure or error ECH7250.