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Contact: michael.firth@taxbar.com
Procedure.Tax
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V2: Procedure for penalty decisions
TMA procedure for penalty
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TMA 1970, s.100 - 100D.
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Dividing responsibility for completing assessment procedure
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"(1D) Where an officer of the Board has decided to impose a penalty under section 100 of this Act and has taken all other decisions needed for arriving at the amount of the penalty, he may entrust to any other officer of the Board responsibility for completing the determination procedure, whether by means involving the use of a computer or otherwise, including responsibility for serving notice of the determination on the person liable to the penalty." (TMA 1970, s.113(1D))
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TMA procedure time limit
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"(1) Subject to subsection (2) below, where the amount of a penalty is to be ascertained by reference to tax payable by a person for any period, the penalty may be determined by an officer of the Board, or proceedings for the penalty may be commenced before the tribunal or a court—
(a) at any time within six years after the date on which the penalty was incurred, or
(b) at any later time within three years after the final determination of the amount of tax by reference to which the amount of the penalty is to be ascertained.
(2) Where the tax was payable by a person who has died, and the determination would be made in relation to his personal representatives, subsection (1)(b) above does not apply if the tax was charged in an assessment made later than six years after the 31st January next following the chargeable period for which it was charged.
(3) …
(4) A penalty to which subsection (1) does not apply may be so determined, or proceedings for such a penalty may be commenced before the tribunal or a court, at any time within six years after the date on which the penalty was incurred or began to be incurred." (TMA 1970, s.103)
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Disapplication of TMA procedure
"Sections 100 to 103 do not apply to a penalty under—
(a) Schedule 24 to FA 2007 (penalties for errors),
(b) Schedule 36 to FA 2008 (information and inspection powers),
(c) Schedule 41 to that Act (penalties for failure to notify and certain other wrongdoing),
(d) Schedule 55 to FA 2009 (penalties for failure to make returns etc),
(e) Schedule 56 to that Act (penalties for failure to make payments on time)
(f) Schedule 23 to FA 2011 (data-gathering powers)
(g) Schedule 38 to FA 2012 (tax agents: dishonest conduct)
(ga) section 212A of the Finance Act 2013 (general anti-abuse rule)
(h) Part 4 of the Finance Act 2014 (follower notices and accelerated payments)
(i) Part 5 of Schedule 18 to the Finance Act 2016 (serial avoiders regime)
(j) Schedule 22 to the Finance Act 2016 (asset-based penalty)
(k) paragraph 1 or 45 of Schedule 16 to the Finance (No. 2) Act 2017 (enablers of defeated tax avoidance etc), or
(l) Schedule 18 to the Finance Act 2017." (TMA 1970, s.103ZA)
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Inaccuracy penalties: FA 2007, Sch 24
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- Procedure for assessing
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"(1) Where a person becomes liable for a penalty under paragraph 1, 1A or 2 HMRC shall—
(a) assess the penalty,
(b) notify the person, and
(c) state in the notice a tax period in respect of which the penalty is assessed (subject to sub-paragraph (1ZB))." (FA 2007, Sch 24, para 13(1))
Penalties that may state the tax year/part of a tax year to which it relates
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"(1ZA) Sub-paragraph (1ZB) applies where—
(a) a person is at any time liable for two or more penalties relating to PAYE returns, or for two or more penalties relating to CIS returns, [or for two or more penalties relating to apprenticeship levy returns, and
(b) the penalties (“the relevant penalties”) are assessed in respect of more than one tax period (“the relevant tax periods”).
(1ZB) A notice under sub-paragraph (1) in respect of any of the relevant penalties may, instead of stating the tax period in respect of which the penalty is assessed, state the tax year or the part of a tax year to which the penalty relates.
(1ZC) For that purpose, a relevant penalty relates to the tax year or the part of a tax year in which the relevant tax periods fall.
(1ZD) For the purposes of sub-paragraph (1ZA)—
“a PAYE return” means a return for the purposes of PAYE regulations;
“a CIS return” means a return for the purposes of regulations under section 70(1)(a) of FA 2004 in connection with deductions on account of tax under the Construction Industry Scheme.]3
[“an apprenticeship levy return” means a return under regulations under section 105 of FA 2016;" (FA 2007, Sch 24, para 13(1ZA) - (1ZD))
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- Time limit for assessment: 12 months from correction/end of appeal period
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"(3) An assessment of a penalty under paragraph 1 or 1A must be made before the end of the period of 12 months beginning with—
(a) the end of the appeal period for the decision correcting the inaccuracy, or
(b) if there is no assessment to the tax concerned within paragraph (a), the date on which the inaccuracy is corrected.
(4) An assessment of a penalty under paragraph 2 must be made before the end of the period of 12 months beginning with—
(a) the end of the appeal period for the assessment of tax which corrected the understatement, or
(b) if there is no assessment within paragraph (a), the date on which the understatement is corrected." (FA 2007, Sch 24, para 13(3) - (4))
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Appeal period
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"(5) For the purpose of sub-paragraphs (3) and (4) a reference to an appeal period is a reference to the period during which—
(a) an appeal could be brought, or
(b) an appeal that has been brought has not been determined or withdrawn." (FA 2007, Sch 24, para 13(5))
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Assessment includes determination
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"(7) In this Part of this Schedule references to an assessment to tax, in relation to inheritance tax and stamp duty reserve tax, are to a determination." (FA 2007, Sch 24, para 13(5))
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- Query whether no time limit if no correction
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"[146] We then considered the structure of Sch 24 to see whether it supported a reading of the word “due” as meaning “liability”, and noted the following:
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(4) Para 13(3) says that HMRC must issue the penalty assessment within 12 months of either (a) the end of the period within which an appeal could be brought, or has been determined, against “the decision correcting the inaccuracy” or (b) “if there is no assessment to the tax concerned within paragraph (a), the date on which the inaccuracy is corrected”. These time limit provisions therefore only take effect if HMRC either issue a corrective assessment to collect the underpaid VAT, or, if there is no such assessment, the taxpayer himself corrects the inaccuracy.
(5) We considered whether this provision carried the necessary implication that penalties could only be raised if the tax position had been corrected, either by a valid assessment, or by the taxpayer himself. However, we decided that this was not the position, because:
(a) nowhere in the Schedule does it state that a penalty can only be raised if the tax position was corrected, and as a matter of statutory interpretation, that purpose cannot be narrowed by a provision dealing only with time limits;
(b) para 13(3) itself makes clear that a penalty can still be levied even if the taxpayer corrects the inaccuracy, and it follows that penalties are not conditional on corrective assessments;
(c) para 13(2) provides that the normal procedural rules apply to penalties issued under the Schedule, “except in respect of a matter expressly provided for by this Act”. If neither of the two time limit provisions in paragraph 13(3) bite, because there has been neither a valid corrective assessment nor a self-correction, the normal VAT time limits therefore apply. In a case of deliberate evasion of VAT, this would be 20 years (VATA s 77(4) and (4A))." (Albany Fish Bar Limited v. HMRC [2021] UKFTT 221 (TC), Judge Redston)
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- Supplementary assessment where underestimate of PLR
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"(6) Subject to sub-paragraphs (3) and (4), a supplementary assessment may be made in respect of a penalty if an earlier assessment operated by reference to an underestimate of potential lost revenue." (FA 2007, Sch 24, para 13(6))
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- Payment of penalty: 30 days
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"(1A) A penalty under paragraph 1, 1A or 2 must be paid before the end of the period of 30 days beginning with the day on which notification of the penalty is issued."
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- Enforcement of penalty as tax​
"(2) An assessment—
(a) shall 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 Act),
(b) may be enforced as if it were an assessment to tax, and
(c) may be combined with an assessment to tax."
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Failure to notify penalties: FA 2008, Sch 41
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- Time limit for assessment
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Date ascertained
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"[47] The FTT referred to the Oxford dictionary (sic) definition of “ascertained” as “find (something) out for certain; make sure of”. We take this to be drawing a contrast with something which is either in the process of being ascertained or capable of being ascertained. We do not consider that the FTT misdirected itself in law, and we agree 30 that the 12 month time limit does not start running from the date when the tax unpaid is capable of ascertainment but from when it is ascertained. This is consistent with the interpretation of the Upper Tribunal in General Transport SPA v HMRC [2019] UKUT 4 ..." (Paltank Ltd v. HMRC [2020] UKUT 211 (TCC), Mann J and Judge Thomas Scott)
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Late return penalties
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- Assessment
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"(1) Where P is liable for a penalty under any paragraph of this Schedule HMRC must—
(a) assess the penalty,
(b) notify P, and
(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.
(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
(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.
(5) Sub-paragraph (6) applies if—
(a) an assessment in respect of a penalty is based on a liability to tax that would have been shown in a return, and
(b) that liability is found by HMRC to be excessive.
(6) HMRC may by notice to P amend the assessment so that it is based upon the correct amount.
(7) An amendment under sub-paragraph (6)—
(a) does not affect when the penalty must be paid;
(b) may be made after the last day on which the assessment in question could have been made under paragraph 19." (FA 2009, Sch 55, para 18)
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- Time limit for assessment (2 years or 1 year after liability determined)
"(1) An assessment of a penalty under any paragraph of this Schedule in respect of any amount must be made on or before the later of date A and (where it applies) date B.
(2) Date A is—
(a) in the case of an assessment of a penalty under paragraph 6C, the last day of the period of 2 years beginning with the end of the tax month in respect of which the penalty is payable,
(b) in the case of an assessment of a penalty under paragraph 6D, the last day of the period of 2 years beginning with the filing date for the relevant extended failure (as defined in paragraph 6D(10)), and
(c) in any other case, 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 which would have been shown in the return, or returns (as the case may be in relation to penalties under section 6C or 6D) 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." (FA 2009, Sch 55, para 18)
Appeal period
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"(4) In sub-paragraph (3)(a) “appeal period” means the period during which—
(a) an appeal could be brought, or
(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)." (FA 2009, Sch 55, para 19)
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Late payment penalties
- Assessment
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"(1) Where P is liable for a penalty under any paragraph of this Schedule HMRC must—
(a) assess the penalty,
(b) notify P, and
(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 notice of the assessment of the penalty is issued.
(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
(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 an amount of [tax which was due or payable]1.
[(4A) If an assessment in respect of a penalty is based on an amount of tax due or payable that is found by HMRC to be excessive, HMRC may by notice to P amend the assessment so that it is based upon the correct amount.
(4B) An amendment made under sub-paragraph (4A)—
(a) does not affect when the penalty must be paid;
(b) may be made after the last day on which the assessment in question could have been made under paragraph 12." (FA 2009, Sch 56, para 11)
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- Time limit​
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"(1) An assessment of a penalty under any paragraph of this Schedule in respect 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 date specified in or for the purposes of column 4 of the Table (that is to say, the last date on which payment may be made without incurring a penalty).
(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 amount of tax in respect of which the penalty is assessed, or
(b) if there is no such assessment, the date on which that amount of tax is ascertained.
(4) In sub-paragraph (3)(a) “appeal period” means the period during which—
(a) an appeal could be brought, or
(b) an appeal that has been brought has not been determined or withdrawn." (FA 2009, Sch 56, para 11)
Penalty not invalid due to arithmetical error
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"[31] There is nothing in the legislation which specifically states that a penalty assessment will become invalid if the underlying assessment contains an arithmetical error. No statutory support for the contention was given, nor was there any statutory support for the assertion that HMRC were required to withdrawn and reissue the penalty assessment.
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[35] Accordingly, I conclude that the penalty did not become invalid when the potential lost revenue was calculated at a lower figure than that originally assessed. The amount of the penalty assessment is capable of being (and has been) appealed under s17(2) Schedule 41 FA 2008 as a result of the reduction in the potential lost revenue amount; that reduction does not render the penalty invalid." (B&M Retail Limited v. HMRC [2023] UKFTT 34 (TC), Judge Fairpo)
Open to HMRC to automate the decision to assess
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"[36] We acknowledge that Donaldson is a case on the application of Schedule 55 FA 2007 where the relevant language – which refers to "HMRC decide…" – is rather different from that in section [VATA 1994] 76(1). However, the point is the same. In our view, Parliament cannot have intended that HMRC should be required to determine on a taxpayer-by-taxpayer basis whether and how to "assess". It must be open to HMRC to make those decisions on a generic basis and to automate the process, any other conclusion would simply be impractical." (MJL Contracts Limited v. HMRC [2023] UKUT 254 (TCC), Judge Greenbank and Judge Andrew Scott)
Query whether HMRC have power to reduce penalty outside of statutory review process​
"[54] We consider that it is clear that the reduction made to the penalty as a result of the review falls within the Respondents' powers under the legislation because:
(1) paragraph 16(3) of Schedule 41 provides that an assessment to a wrongdoing penalty is to be treated for procedural purposes in the same way as an assessment to tax; and
(2) the provisions dealing with assessments to excise duties in the Finance Act 1994 (the "FA 1994") empower the Respondents to vary an assessment on review - see Section 15F(5) of the FA 1994.
[55] It is less clear that the Respondents are empowered by the legislation to reduce an assessment to a wrongdoing penalty after the review has been concluded and the Appellant has notified its appeal against the review conclusion to the FTT. The Respondents submit that Section 12(3) of the FA 1994 is authority for that proposition because it stipulates that an amount assessed as due and notified under Section 12 of the FA 1994 shall, subject to any appeal, be deemed to be the amount of the duty due and may be recovered accordingly "unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced". The Respondents say that the reference in that section to a reduced assessment means that the Respondents may reduce the assessment at any time. That may be so but it is not entirely clear to us that a mere reference in the legislation to a reduced assessment as an exception to the rule that the amount shown in the original assessment is to be deemed to be the amount due is sufficient to empower the Respondents to reduce an assessment at any time without express authority to do so in the legislation. We would have expected a power of that nature to have been set out expressly in the legislation. As it stands, the reference in that section to a reduced assessment seems more likely to us to be referring to the power of the Respondents to reduce the amount assessed on review pursuant to Section 15F(5) of the FA 1994, as mentioned in paragraph 54 above. However, this question is of little moment in the present context because, even if we are confined in this decision to considering the penalty following its reduction on review and not the penalty as subsequently reduced on 24 January 2024, we consider that, for the reasons set out in paragraphs 68 to 71 below, we are entitled by paragraph 19 of Schedule 41 to substitute for the Respondents' decision another decision which the Respondents had the power to make. Accordingly, we can consider the penalty position ab initio for ourselves." (Kent Couriers Limited v. HMRC [2024] UKFTT 145 (TC), Judge Beare)
FTT considering quantum of penalty even though not expressly challenged
"[68]...We have therefore considered whether, in the absence of an express appeal against the quantum of the penalty by the Appellant, we have no option but to affirm the quantum of the penalty as it stands.
[69] However, we think that that would be an overly-restrictive approach to the legislation and the facts and would not be in keeping with the overriding objective in paragraph 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the "Tribunal Rules") or our power to regulate our own procedure in paragraph 5 of the Tribunal Rules. The former paragraph requires that we deal with cases fairly and justly and the latter paragraph gives us wide powers of case management. We think that it is implicit in the grounds of appeal in this case that the Appellant is objecting not just to the penalty itself but also, in the event that we affirm the decision to assess a penalty, to the amount of the penalty." (Kent Couriers Limited v. HMRC [2024] UKFTT 145 (TC), Judge Beare)
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