EM1361 - Human Rights Act 1998 (HRA): Article 6: HMRC penalties

We accept that some HMRC penalties are ‘criminal’ for the purposes of Article 6. This classification as ‘criminal’ is for the purposes of ECHR only. It does not make them criminal for domestic purposes. They remain civil penalties.

A number of court cases have established the principle that penalties based on the whole of the tax unpaid are punitive and deterrent in nature. Therefore, even though there is no possibility of a criminal charge, the penalties are 'criminal' for the purposes of Article 6 of the ECHR.

This means that we must be careful not to breach the person’s rights under Article 6, see EM1360.

Penalties fall into two categories:

Penalties that we accept or treat as 'criminal' for Article 6 purposes

We accept that penalties are potentially 'criminal' for Article 6 purposes where the maximum potential penalty is either

  • 100% of the tax difference, unpaid tax or potential lost revenue, or
  • 70% of the potential lost revenue, see EM1362.

In practice the final penalty may be based on a maximum penalty of less than 70% but you may not know this when the penalty is first suspected. The potential penalty must therefore be treated as if it is 'criminal' even though the final penalty charged may not be 'criminal' for Article 6 purposes.

For example, you may suspect that a Schedule 24 penalty is due and this is because the taxpayer did not take reasonable care. Although the maximum penalty for a careless inaccuracy is 30%, the maximum penalty for a Schedule 24 penalty could be either 70% or 100% depending on the behaviour. Even if the final penalty is 30% or less, it must be treated as "criminal" from the start.

The type of HMRC penalties that fall within Article 6 include

  • error penalties charged under TMA70/S95, FA98/SCH18/PARA20 and the 100% and 70% penalties in FA07/SCH24/PARA1 and PARA1A
  • failure penalties charged under TMA70/S7(8), TMA70/S93(5) and the 100% and 70% penalties in FA08/SCH41/PARA1
  • civil evasion penalties charged under VATA94/S60
  • the 100% and 70% penalties for VAT and Excise wrongdoings charged under FA08/SCH41/PARA2 - 4.

EM1363 explains what you must do when you first discover that a person may be liable to one of these penalties.

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Penalties that we do not accept are 'criminal' for Article 6 purposes where we believe it is still good practice to issue the HRA factsheet

We do not accept that any other HMRC penalties are subject to Article 6 of the ECHR.

The majority of tax geared penalties (but not fixed penalties) must be treated as if they are subject to Article 6 ECHR because the maximum penalty could be either 70% or 100%.

Penalties under Para 2 of Schedule 24 FA07 are an exception. The maximum tax geared penalty chargeable is 30%. Although we do not accept that this maximum penalty is 'criminal' for Article 6 you will still need to explain at an early stage the basis of the penalty and the reductions available for disclosure, and issue factsheet CC/FS7 “penalties for errors in returns or documents”. It is therefore good practice to issue the HRA factsheet CC/FS9 at the same time.

For this category of penalty, it is not necessary to follow the procedure at EM1365. It is sufficient to tell the person that the factsheet explains their rights when we are considering penalties. If you are in a meeting with the person, you should hand them CC/FS9 before the other factsheets and give them the opportunity to read it, noting any response, before you proceed. Otherwise, you should simply draw their attention to all the relevant factsheets you have issued in any covering letters.

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)