Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 55 — Penalty for failure to make returns etc
397

(b)
amounts which, in respect of that year, are tax credits to which
section 397(1) or 397A(2) of ITTOIA 2005 applies,

but does not include a reference to amounts which, in that year, are
deducted at source under PAYE regulations in respect of previous years.
Schedule 55
5
Section 105

Penalty for failure to make returns etc
Penalty for failure to make returns etc‘
1     (1)
A penalty is payable by a person (“P”) where P fails to make or deliver a
return, or to deliver any other document, specified in the Table below on or
before the filing date.
10
      (2)
Paragraphs 2 to 13 set out—
(a)
the circumstances in which a penalty is payable, and
(b)
subject to paragraphs 14 to 17, the amount of the penalty.
      (3)
If P’s failure falls within more than one paragraph of this Schedule, P is liable
to a penalty under each of those paragraphs (but this is subject to paragraph
15
17(3)).
      (4)
In this Schedule—
“filing date”, in relation to a return or other document, means the date
by which it is required to be made or delivered to HMRC;
“penalty date”, in relation to a return or other document, means the
20
date on which a penalty is first payable for failing to make or deliver
it (that is to say, the day after the filing date).
      (5)
In the provisions of this Schedule which follow the Table—
(a)
any reference to a return includes a reference to any other document
specified in the Table, and
25
(b)
any reference to making a return includes a reference to delivering a
return or to delivering any such document.

Tax to which return etc relates
Return or other document

1
Income tax or capital gains
(a)
Return under section 8(1)(a) of TMA 1970

tax
(b)
Accounts, statement or document required

30

under section 8(1)(b) of TMA 1970

2
Income tax or capital gains
(a)
Return under section 8A(1)(a) of TMA 1970

tax
(b)
Accounts, statement or document required

under section 8A(1)(b) of TMA 1970

3
Income tax or corporation
(a)
Return under section 12AA(2)(a) or (3)(a) of

35

tax
TMA 1970

(b)
Accounts, statement or document required

under section 12AA(2)(b) or (3)(b) of TMA 1970

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Schedule 55 — Penalty for failure to make returns etc
398

Tax to which return etc relates
Return or other document

4
Income tax
(a)
Annual return of payments and net tax

deducted for the purposes of PAYE regulations

(b)
Return of revised payments and net tax

deducted for those purposes where those

5

amounts are revised after end of tax year

5
Income tax
Return under section 254 of FA 2004 (pension schemes)

6
Deductions on account of
Return under regulations under section 70 of FA 2004

tax under Chapter 3 of Part

3 of FA 2004 (construction

10

industry scheme)

7
Corporation tax
Company tax return under paragraph 3 of Schedule 18 to

FA 1998

8
Inheritance tax
Account under section 216 or 217 of IHTA 1984

9
Stamp duty land tax
Land transaction return under section 76 of FA 2003 or

15

further return under section 81 of that Act

10
Stamp duty land tax
Return under paragraph 3, 4 or 8 of Schedule 17A to FA

2003

11
Stamp duty reserve tax
Notice of charge to tax under regulations under section

98 of FA 1986

20

12
Petroleum revenue tax
Return under paragraph 2 of Schedule 2 to OTA 1975

13
Petroleum revenue tax
Statement under section 1(1)(a) of PRTA 1980

Amount of penalty: occasional returns and annual returns
2
Paragraphs 3 to 6 apply in the case of a return falling within any of items 1
to 5 and 7 to 13 in the Table.
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3
P is liable to a penalty under this paragraph of £100.
4     (1)
P is liable to a penalty under this paragraph if (and only if)—
(a)
P’s failure continues after the end of the period of 3 months
beginning with the penalty date,
(b)
HMRC decide that such a penalty should be payable, and
30
(c)
HMRC give notice to P specifying the date from which the penalty is
payable.
      (2)
The penalty under this paragraph is £10 for each day that the failure
continues during the period of 90 days beginning with the date specified in
the notice given under sub-paragraph (1)(c).
35
      (3)
The date specified in the notice under sub-paragraph (1)(c)—
(a)
may be earlier than the date on which the notice is given, but
(b)
may not be earlier than the end of the period mentioned in sub-
paragraph (1)(a).
5     (1)
P is liable to a penalty under this paragraph if (and only if) P’s failure
40
continues after the end of the period of 6 months beginning with the penalty
date.
      (2)
The penalty under this paragraph is the greater of—

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(a)
5% of any liability to tax which would have been shown in the return
in question, and
(b)
£300.
6     (1)
P is liable to a penalty under this paragraph if (and only if) P’s failure
continues after the end of the period of 12 months beginning with the
5
penalty date.
      (2)
Where, by failing to make the return, P withholds information which would
enable or assist HMRC to assess P’s liability to tax, the penalty under this
paragraph is determined in accordance with sub-paragraphs (3) and (4).
      (3)
If the withholding of the information is deliberate and concealed, the penalty
10
is the greater of—
(a)
100% of any liability to tax which would have been shown in the
return in question, and
(b)
£300.
      (4)
If the withholding of the information is deliberate but not concealed, the
15
penalty is the greater of—
(a)
70% of any liability to tax which would have been shown in the
return in question, and
(b)
£300.
      (5)
In any other case, the penalty under this paragraph is the greater of—
20
(a)
5% of any liability to tax which would have been shown in the return
in question, and
(b)
£300.
Amount of penalty: CIS returns
7
Paragraphs 8 to 13 apply in the case of a return falling within item 6 in the
25
Table.
8
P is liable to a penalty under this paragraph of £100.
9     (1)
P is liable to a penalty under this paragraph if (and only if) P’s failure
continues after the end of the period of 2 months beginning with the penalty
date.
30
      (2)
The penalty under this paragraph is £200.
10    (1)
P is liable to a penalty under this paragraph if (and only if) P’s failure
continues after the end of the period of 6 months beginning with the penalty
date.
      (2)
The penalty under this paragraph is the greater of—
35
(a)
5% of any liability to make payments which would have been shown
in the return in question, and
(b)
£300.
11    (1)
P is liable to a penalty under this paragraph if (and only if) P’s failure
continues after the end of the period of 12 months beginning with the
40
penalty date.
      (2)
Where, by failing to make the return, P withholds information which would
enable or assist HMRC to assess the amount that P is liable to pay to HMRC

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Schedule 55 — Penalty for failure to make returns etc
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in accordance with Chapter 3 of Part 3 of FA 2004, the penalty under this
paragraph is determined in accordance with sub-paragraphs (3) and (4).
      (3)
If the withholding of the information is deliberate and concealed, the penalty
is the greater of—
(a)
100% of any liability to make payments which would have been
5
shown in the return in question, and
(b)
£3,000.
      (4)
If the withholding of the information is deliberate but not concealed, the
penalty is the greater of—
(a)
70% of any liability to make payments which would have been
10
shown in the return in question, and
(b)
£1,500.
      (5)
In any other case, the penalty under this paragraph is the greater of—
(a)
5% of any liability to make payments which would have been shown
in the return in question, and
15
(b)
£300.
12    (1)
P is liable to a penalty under this paragraph if (and only if)—
(a)
P’s failure continues after the end of the period of 12 months
beginning with the penalty date, and
(b)
the information required in the return relates only to persons
20
registered for gross payment (within the meaning of Chapter 3 of
Part 3 of FA 2004).
      (2)
Where, by failing to make the return, P withholds information which relates
to such persons, the penalty under this paragraph is—
(a)
if the withholding of the information is deliberate and concealed,
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£3,000, and
(b)
if the withholding of the information is deliberate but not concealed,
£1,500.
13    (1)
This paragraph applies—
(a)
at any time before P makes a return falling within item 6 in the Table,
30
to any return falling within that item, and
(b)
at any time after P first makes a return falling within that item, to that
return and any earlier return.
      (2)
P is not liable, in respect of any return or returns to which this paragraph
applies, to penalties under paragraphs 8 and 9 which exceed, in total, £3000.
35
      (3)
In sub-paragraph (1)(b) “earlier return” means any return falling within item
6 which has a filing date earlier than the filing date for the first return made
by P.
Reductions for disclosure
14    (1)
Paragraph 15 provides for reductions in the penalty under paragraph 6(3) or
40
(4) or 11(3) or (4) where P discloses information which has been withheld by
a failure to make a return (“relevant information”).
      (2)
P discloses relevant information by—
(a)
telling HMRC about it,

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(b)
giving HMRC reasonable help in quantifying any tax unpaid by
reason of its having been withheld, and
(c)
allowing HMRC access to records for the purpose of checking how
much tax is so unpaid.
      (3)
Disclosure of relevant information—
5
(a)
is “unprompted” if made at a time when P has no reason to believe
that HMRC have discovered or are about to discover the relevant
information, and
(b)
otherwise, is “prompted”.
      (4)
In relation to disclosure “quality” includes timing, nature and extent.
10
15    (1)
Where a person who would otherwise be liable to a 100% penalty has made
an unprompted disclosure, HMRC must reduce the 100% to a percentage,
not below 30%, which reflects the quality of the disclosure.
      (2)
Where a person who would otherwise be liable to a 100% penalty has made
a prompted disclosure, HMRC must reduce the 100% to a percentage, not
15
below 50%, which reflects the quality of the disclosure.
      (3)
Where a person who would otherwise be liable to a 70% penalty has made
an unprompted disclosure, HMRC must reduce the 70% to a percentage, not
below 20%, which reflects the quality of the disclosure.
      (4)
Where a person who would otherwise be liable to a 70% penalty has made a
20
prompted disclosure, HMRC must reduce the 70% to a percentage, not
below 35%, which reflects the quality of the disclosure.
      (5)
But HMRC must not under this paragraph—
(a)
reduce a penalty under paragraph 6(3) or (4) below £300, or
(b)
reduce a penalty under paragraph 11(3) or (4) below the amount set
25
by paragraph 11(3)(b) or (4)(b) (as the case may be).
Special reduction
16    (1)
If HMRC think it right because of special circumstances, they may reduce a
penalty under any paragraph of this Schedule.
      (2)
In sub-paragraph (1) “special circumstances” does not include—
30
(a)
ability to pay, or
(b)
the fact that a potential loss of revenue from one taxpayer is balanced
by a potential over-payment by another.
      (3)
In sub-paragraph (1) the reference to reducing a penalty includes a reference
to—
35
(a)
staying a penalty, and
(b)
agreeing a compromise in relation to proceedings for a penalty.
Interaction with other penalties and late payment surcharges
17    (1)
Where P is liable for a penalty under any paragraph of this Schedule which
is determined by reference to a liability to tax, the amount of that penalty is
40
to be reduced by the amount of any other penalty incurred by P, if the
amount of the penalty is determined by reference to the same liability to tax.
      (2)
In sub-paragraph (1) the reference to “any other penalty” does not include—

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(a)
a penalty under any other paragraph of this Schedule, or
(b)
a penalty under Schedule 56 (penalty for late payment of tax).
      (3)
Where P is liable for a penalty under more than one paragraph of this
Schedule which is determined by reference to a liability to tax, the aggregate
of the amounts of those penalties must not exceed 100% of the liability to tax.
5
Assessment
18    (1)
Where P is liable for a penalty under any paragraph of this Schedule HMRC
must—
(a)
assess the penalty,
(b)
notify P, and
10
(c)
state in the notice the period in respect of which the penalty is
assessed.
      (2)
A penalty under any paragraph of this Schedule must be paid before the end
of the period of 30 days beginning with the day on which notification of the
penalty is issued.
15
      (3)
An assessment of a penalty under any paragraph of this Schedule—
(a)
is to be treated for procedural purposes in the same way as an
assessment to tax (except in respect of a matter expressly provided
for by this Schedule),
(b)
may be enforced as if it were an assessment to tax, and
20
(c)
may be combined with an assessment to tax.
      (4)
A supplementary assessment may be made in respect of a penalty if an
earlier assessment operated by reference to an underestimate of the liability
to tax which would have been shown in a return.
19    (1)
An assessment of a penalty under any paragraph of this Schedule in respect
25
of any amount must be made on or before the later of date A and (where it
applies) date B.
      (2)
Date A is the last day of the period of 2 years beginning with the filing date.
      (3)
Date B is the last day of the period of 12 months beginning with—
(a)
the end of the appeal period for the assessment of the liability to tax
30
which would have been shown in the return, or
(b)
if there is no such assessment, the date on which that liability is
ascertained or it is ascertained that the liability is nil.
      (4)
In sub-paragraph (3)(a) “appeal period” means the period during which—
(a)
an appeal could be brought, or
35
(b)
an appeal that has been brought has not been determined or
withdrawn.
      (5)
Sub-paragraph (1) does not apply to a re-assessment under paragraph
24(2)(b).
Appeal
40
20    (1)
P may appeal against a decision of HMRC that a penalty is payable by P.
      (2)
P may appeal against a decision of HMRC as to the amount of a penalty
payable by P.

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21    (1)
An appeal under paragraph 20 is to be treated in the same way as an appeal
against an assessment to the tax concerned (including by the application of
any provision about bringing the appeal by notice to HMRC, about HMRC
review of the decision or about determination of the appeal by the First-tier
Tribunal or Upper Tribunal).
5
      (2)
Sub-paragraph (1) does not apply—
(a)
so as to require P to pay a penalty before an appeal against the
assessment of the penalty is determined, or
(b)
in respect of any other matter expressly provided for by this Act.
22    (1)
On an appeal under paragraph 20(1) that is notified to the tribunal, the
10
tribunal may affirm or cancel HMRC’s decision.
      (2)
On an appeal under paragraph 20(2) that is notified to the tribunal, the
tribunal may—
(a)
affirm HMRC’s decision, or
(b)
substitute for HMRC’s decision another decision that HMRC had
15
power to make.
      (3)
If the tribunal substitutes its decision for HMRC’s, the tribunal may rely on
paragraph 16—
(a)
to the same extent as HMRC (which may mean applying the same
percentage reduction as HMRC to a different starting point), or
20
(b)
to a different extent, but only if the tribunal thinks that HMRC’s
decision in respect of the application of paragraph 16 was flawed.
      (4)
In sub-paragraph (3)(b) “flawed” means flawed when considered in the light
of the principles applicable in proceedings for judicial review.
      (5)
In this paragraph “tribunal” means the First-tier Tribunal or Upper Tribunal
25
(as appropriate by virtue of paragraph 21(1)).
Reasonable excuse
23    (1)
Liability to a penalty under any paragraph of this Schedule does not arise in
relation to a failure to make a return if P satisfies HMRC or (on appeal) the
First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the
30
failure.
      (2)
For the purposes of sub-paragraph (1)—
(a)
an insufficiency of funds is not a reasonable excuse, unless
attributable to events outside P’s control,
(b)
where P relies on any other person to do anything, that is not a
35
reasonable excuse unless P took reasonable care to avoid the failure,
and
(c)
where P had a reasonable excuse for the failure but the excuse has
ceased, P is to be treated as having continued to have the excuse if the
failure is remedied without unreasonable delay after the excuse
40
ceased.
Determination of penalty geared to tax liability where no return made
24    (1)
References to a liability to tax which would have been shown in a return are
references to the amount which, if a complete and accurate return had been
delivered on the filing date, would have been shown to be due or payable by
45