SCIG30170 - Appendix 33 - New Penalties decisions template: guide to completion
NEW PENALTIES IN SI: SHORT CASES DECISIONS TEMPLATE
Introduction: Purpose of the template
Scope of use
Step-by-step guide
Introduction: Purpose of the template
The decisions template is designed to help you to make correct, defendable decisions about penalties. It takes you through the decision-making process step by step, prompting you to consider the significance of the evidence you have gathered, and to address all of the questions which must be answered before a penalty can be charged.
The decisions template should be checked by your manager and by your authorising officer, and will also be seen by the Technical Manager (Powers and Penalties). If the penalty is not agreed, it will be the basis for the Technical Manager’s report to the Deputy Director, whose permission is needed for the penalty to be assessed. But these are secondary purposes. The template should not be seen as an extra layer of work, required to satisfy the various levels of authorisation or to create an audit trail. It is primarily a tool to help you to get penalties right. You need to address the questions which the template poses in order to get the right result.
The template does not require you to describe correspondence or visits in great detail. A blow-by-blow account of your investigation will not usually be needed. Instead, you should aim to summarise the relevant evidence so that you can take a fresh look at it. Then go on to consider all the statutory tests and record your reasoning and conclusions. This will enable you to reach the correct decision, and it will also show others how you have done so.
Scope of use
The template has been designed with comparatively short cases in mind - those taking months rather than years, with a small number of significant issues. It is not intended for use in large, complex cases or cases worked under COP 9, where a fuller settlement report may be needed. It is to be used only for New Penalties, charged under Sch 24 FA 2007 and Sch 41 FA 2008.
Step-by-step guide
Box 1. Insert the name of the taxpayer on whom the penalty is to be assessed. Indicate the status of the entity if this is not obvious (e.g. sole trader, partnership etc).
Box 2. Insert VRN if this is a VAT case, and any other relevant reference number.
Box 3. If the taxpayer is not a sole trader, insert here the names of the directors or partners. If they were not all directors/partners throughout the period relevant to the penalty and up to the present, show the relevant dates.
Box 4. Insert one of the following:
- mistake despite taking reasonable care
- careless inaccuracy in a return
- deliberate inaccuracy in a return
- deliberate and concealed inaccuracy in a return
- failure to notify under-assessment
- failure to notify liability to register etc (Sch 41 FA 2008).
Box 5. If the facts and issues are substantially the same, use a single template for more than one period.
Box 6. Here you should summarise the facts of the case that are directly relevant to the question of a penalty. It is not necessary to say everything you know about the case. What is the evidence which leads you to conclude that a penalty is due? And equally important, what is the evidence that might cause you - or a tribunal member - to doubt that a penalty is due?
You do not need to give full details of the taxpayer’s history, unless this is relevant. For example, evidence from previous periods is relevant if it helps you to judge the probability that the more recent conduct is deliberate.
Dates of assessments and of the submission of returns will need to be shown if they are relevant to the question of a penalty.
Box 7. This is where you analyse the evidence, draw inferences of further facts, consider the statutory tests, and show how you reach your conclusions. Where appropriate you should also show that you have considered the alternatives, and why you have rejected them. (This is not for the benefit of any supervisor, but to make sure that you have looked at the case from every angle.)
Particular points to consider for Sch 24 penalties are as follows:
Paragraph 1 (inaccurate return):
Did a document provided to HMRC:
- Contain an inaccuracy that led to an understatement of tax, a false or inflated statement of a loss or a false or inflated claim to repayment?
- Was that inaccuracy either (i) careless or deliberate at the time the return was prepared, or (ii) discovered later by the taxpayer but not notified?
When considering whether conduct was deliberate or careless, you must engage with the question of what was in the taxpayer’s mind at the time the return was submitted.
If you allege deliberate conduct, which is usually tantamount to dishonesty, you must have strong evidence - enough to show that this is probable.
Are there possible innocent explanations? How likely are they?
Paragraph 2 (failure to notify an under-assessment):
- Was an under-assessment issued?
- Did the taxpayer fail to notify HMRC of this fact within 30 days?
- Did the taxpayer know, or should they have known, that the assessment was an under-assessment?
- What would have been reasonable steps to take to notify HMRC? (If the taxpayer had reason to believe that HMRC already knew, then no steps were needed and no penalty is due.)
NB. You cannot charge a penalty for failure to submit a VAT return as such. But a trader who has failed to submit a VAT return on time may also have failed to notify us of an under-assessment which we did not already know about.
Box 8. When the taxpayer began to make a disclosure to you (by telling, helping or giving access) did he have reason to believe that you had discovered, or were about to discover, the inaccuracy or failure? If so, the disclosure is prompted. If not, then unprompted. Set out the relevant facts and your reasoning.
Boxes 9, 10 and 11. Summarise the taxpayer’s conduct during the compliance check that is relevant to each factor. Disregard conduct that preceded the offence. Where several periods are involved, some conduct may be relevant to earlier offences but not to later ones. Show that you have taken into account aspects that support a higher reduction, as well as those that support a lower reduction. Where little assistance is required from the taxpayer, the reduction will be high. This is the only place on the template where you need to refer to the course of your investigation as such.
Box 12. Figure (a) is the total of boxes 9, 10 and 11.
Figures (b) and (c) depend on the decisions you have made about the offence and whether disclosure is prompted: see CH82470.
Potential Lost Revenue (PLR) is calculated according to instructions at CH82150 and CH450400.
The remaining figures are all derived from these.
Box 13. Use this space to adjust the penalty to take account of other penalties charged on the same amount of tax. In VAT cases, keep a lookout for any default surcharges. In direct taxes, watch out for tax-geared penalties for late returns. See CH84950.
Box 14. By law, only penalties for careless inaccuracies are eligible for suspension. Within that category, HMRC policy is not to offer suspension for cases where:
- the carelessness is connected with tax avoidance
- the circumstances are unlikely to be repeated
- disclosure has been poor
- the offence has occurred during the period of suspension of a previous penalty.
See CH83150 for more details.
Box 15. If suspension is possible, you should have taken steps to propose suspension to the taxpayer. Record the outcome here, including the terms of suspension, if any have been agreed. Note that suspension cannot be applied unless the taxpayer agrees to the terms. See CH83100 for more information.
(This text has been withheld because of exemptions in the Freedom of Information Act 2000)
Box 17. Key decisions need to be approved by your manager before details of the penalty are discussed with the taxpayer. See CH480300.
Box 18. The proposed penalty should be explained, and agreement sought wherever possible. This reduces the likelihood of a later challenge. An oral agreement given in the course of a meeting is sufficient. But failure to reply to a letter that says ‘If you do not reply, I will assume you agree’ is not sufficient: there is no positive indication that the penalty won’t be appealed. You do not have to spend more time pursuing agreement where this seems unlikely to be given. But you will have to treat the penalty as un-agreed, and submit it for approval in accordance with (This text has been withheld because of exemptions in the Freedom of Information Act 2000).
