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V3: Penalties for failure to submit return

GENERAL

GENERAL​

Imposition of penalty

 

"(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." (FA 2009, Sch 55, para 1)

Filing date

"“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;" (FA 2009, Sch 55, para 1)

Imposition of penalty

Initial £100 penalty

 

"P is liable to a penalty under this paragraph of £100." (FA 2009, Sch 55, para 3)

Initial £100 penalty

Daily penalties

 

"(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

(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).

(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)." (FA 2009, Sch 55, para 4)

Penalty date

"“penalty date”, in relation to a return or other document falling within any of items 1 to 3 and 5 to 13B in the Table, means the 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)." (FA 2009, Sch 55, para 1(4))

Daily penalties

- Daily penalties may be imposed from a date prior to the notice that they are payable

 

"[29]...Paragraph 4(1)(c) must be read together with the whole of paragraph 4, in particular paragraph 4(3).  The wording of paragraph 4(3) is clear and unambiguous.  It provides that the date specified in the notice in paragraph 4(1)(c) may be a date earlier than the date of the notice itself.  We do not see how that can be read otherwise than to permit the notice to be given retrospectively.  While we do not think it is necessary to do so, since paragraph 4(3) is clear in itself, reference to the Explanatory Notes (set out at paragraph 15 above) reinforces this conclusion:  the ability to give a retrospective notice was included to cater for the case (such as ATED) where HMRC cannot know in advance of filing that a return is due or that it is late."  (Priory London Limited v. HMRC [2022] UKUT 225 (TCC), Zacaroli J and Judge Ramshaw)

- Daily penalties may be imposed from a date prior to the notice that they are payable

Tax geared penalty (6 months)

 

"(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—

(a) 5% of any liability to tax which would have been shown in the return in question, and

(b) £300." (FA 2009, Sch 55, para 5)

Tax geared penalty

Tax geared penalty (12 months)

 

"(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 penalty date.

(2) Where, by failing to make the return, P deliberately 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 is the greater of—

(a) the relevant percentage of any liability to tax which would have been shown in the return in question, and

(b) £300.

(3A) For the purposes of sub-paragraph (3)(a), the relevant percentage is—

(a) for the withholding of category 1 information, 100%,

(b) for the withholding of category 2 information, 150%, and

(c) for the withholding of category 3 information, 200%.

(4) If the withholding of the information is deliberate but not concealed, the penalty is the greater of—

(a) the relevant percentage of any liability to tax which would have been shown in the return in question, and

(b) £300.

(4A) For the purposes of sub-paragraph (4)(a), the relevant percentage is—

(a) for the withholding of category 1 information, 70%,

(b) for the withholding of category 2 information, 105%, and

(c) for the withholding of category 3 information, 140%.

(5) In any case not falling within sub-paragraph (2), the penalty under this paragraph is the greater of—

(a) 5% of any liability to tax which would have been shown in the return in question, and

(b) £300.

(6) Paragraph 6A explains the 3 categories of information." (FA 2009, Sch 55, para 6)

- Liability which would have been shown in return if complete and accurate

 

"(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 the taxpayer in respect of the tax concerned for the period to which the return relates.

(2) In the case of a penalty which is assessed at a time before P makes the return to which the penalty relates—

(a) HMRC is to determine the amount mentioned in sub-paragraph (1) to the best of HMRC's information and belief, and

(b) if P subsequently makes a return, the penalty must be re-assessed by reference to the amount of tax shown to be due and payable in that return (but subject to any amendments or corrections to the return).

(3) In calculating a liability to tax which would have been shown in a return, no account is to be taken of any relief under section 458 of CTA 2010 (relief in respect of repayment etc of loan) which is deferred under subsection (5) of that section." (FA 2009, Sch 55, para 24)

- 'Tax which would have been shown in return' does not take account of payments on account

- 'Tax which would have been shown in return' does not take account of payments on account

 

"[84] We consider it clear that the definition in para 24(1) of "a liability to tax which would have been shown in a return" requires, on a natural reading, an analysis of what would appear on a hypothetical tax return. The hypothetical return for this purpose being the return that would have been submitted by the taxpayer had they submitted their return on the correct filing date for the tax year in question. The words "shown to be due and payable" in para 24(1) clearly connote the amount shown to be due and payable in the hypothetical tax return.
[85] We agree with the FTT that the amount "shown in a return" is not, necessarily, the same as the amount of tax which is "due" and/or "payable" by the taxpayer for the period covered by that return.
[86] As well as being the natural reading of the definition, this interpretation is consistent with the intention of Sched 55, which is to penalise failure "to make or deliver a return … on or before the filing date". It is not surprising, given that intention, for the tax-geared penalty for failure to be set by reference to the tax amounts shown (or which would have been shown) in the return in question. This is in contrast to Sched 56, which penalises failure to pay tax on time and which provides (see paras 3(3) and 3(4)) for the tax-geared penalties to be computed by reference to any amount of the tax which is "unpaid" after the end of the relevant period. The difference in language is striking. If liability under Sched 55 was nevertheless by reference to the amount of tax unpaid, there would be duplicated liability under Scheds 55 and 56 in many cases." 
(Marano v. HMRC [2023] UKUT 113 (TCC), Fancourt J and Judge Tilakapala)

Cap on certain tax geared penalties

 

"(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 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—

(a) a penalty under any other paragraph of this Schedule, or

(b) a penalty under Schedule 56 (penalty for late payment of tax), or

(c) a penalty under Part 4 of FA 2014 (penalty where corrective action not taken after follower notice etc), or

(d) a penalty under Schedule 22 to FA 2016 (asset-based penalty).

(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 the relevant percentage of the liability to tax." (FA 2009, Sch 55, para 17)

 

Relevant percentage

(4) The relevant percentage is—

(a) if one of the penalties is a penalty under paragraph 6(3) or (4) and the information withheld is category 3 information, 200%,

(b) if one of the penalties is a penalty under paragraph 6(3) or (4) and the information withheld is category 2 information, 150%, and

(c) in all other cases, 100%." (FA 2009, Sch 55, para 17)

Cap on certain tax geared penalties

Special circumstances reductions

See V7: Special circumstances

Special circumstances reductions​

Reasonable excuse

 

"(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 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 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 ceased." (FA 2009, Sch 55, para 23)

See further A3: Reasonable excuse

Reasonable excuse​

Double jeopardy 

"P is not liable to a penalty under any paragraph of this Schedule in respect of a failure or action in respect of which P has been convicted of an offence." (FA 2009, Sch 55, para 26)

Double jeopardy ​

LATE PAYE RETURN

LATE PAYE RETURN​

Initial penalty

 

"(1) If P fails during a tax month to make a return on or before the filing date, P is liable to a penalty under this paragraph in respect of that month.

(2) But this is subject to sub-paragraphs (3) and (4).

(3) P is not liable to a penalty under this paragraph in respect of a tax month as a result of any failure to make a return on or before the filing date which occurs during the initial period.

(4) P is not liable to a penalty under this paragraph in respect of a tax month falling in a tax year if the month is the first tax month in that tax year during which P fails to make a return on or before the filing date (disregarding for this purpose any failure which occurs during the initial period).

(5) In sub-paragraphs (3) and (4) “the initial period” means the period which—

(a) begins with the day in the first tax year on which P is first required to make a return, and

(b) is of such duration as is specified in regulations made by the Commissioners,

and for this purpose “the first tax year” means the first tax year in which P is required to make returns.

(6) P may be liable under this paragraph to no more than one penalty in respect of each tax month.

(7) The penalty under this paragraph is to be calculated in accordance with regulations made by the Commissioners." (FA 2009, Sch 55, para 6C)

Initial penalty

- Penalty depends on number of employees​

 

"(1) For the purposes of paragraph 6C of Schedule 55 to the Finance Act 2009 (amount of penalty: real time information for PAYE)(6), a Real Time Information employer which fails to deliver a return falling within item 4 in the Table in paragraph 1 of that Schedule in accordance with—

(a) regulation 67B (real time returns of information about relevant payments)(7);
(b) regulation 67BA (employees in respect of whom employer is not required to maintain a deductions working sheet)(8);
(c) regulation 67BB (employees paid in specific circumstances)(9);
(d) regulation 67C (modification of the requirements of regulation 67B: notional payments)(10); or
(e) regulation 67D (exceptions to regulation 67B)(11)
as the case may be, is liable to a penalty of the amount set out in paragraph (2).

(2) Where a Real Time Information employer fails to deliver such a return and the number of persons employed in the period to which the return relates is—

(a) no more than 9, the penalty is £100;
(b) at least 10 but no more than 49, the penalty is £200;
(c) at least 50 but no more than 249, the penalty is £300; and
(d) at least 250, the penalty is £400." (SI 2003/2682, r.67I)

- Penalty depends on number of employees​

- Initial period is 30 days

"For the purposes of paragraph 6C(3), (4) and (5) of Schedule 55 to the Finance Act 2009 (initial period), the duration of the initial period is thirty days." (SI 2003/2682, r.67I)

- Initial period is 30 days
- First failure to deliver return

- First failure to deliver return

"(1) Paragraph 6C(4) of Schedule 55 to the Finance Act 2009 (unpenalised default) does not apply to any failure to deliver a return falling within item 4 in the Table in paragraph 1 of that Schedule in accordance with regulation 67B, regulation 67BA, regulation 67BB, regulation 67C or regulation 67D, as the case may be,—

(a) by a small existing Real Time Information employer or a new Real Time Information employer in the period 6 March 2015 to 5 April 2015; or

(b) for any tax year for which a Real Time Information employer operates an annual PAYE Scheme.

(2) For the purposes of paragraph (1)(a)—

(a) an employer is a small existing Real Time Information employer if at 6th October 2014 that employer employed no more than 49 employees; and

(b) an employer is a new Real Time Information employer if it is issued with an employer's PAYE reference after 6th October 2014.

(3) For the purposes of paragraph (1)(b), a Real Time Information employer operates an annual PAYE Scheme for a tax year if for that year—

(a) all the employees are paid annually;

(b) all the employees are paid on the same date; and

(c) the Real Time Information employer is only required under regulation 69 (due date and receipts for payment of tax) to pay HMRC annually." (SI 2003/2682, r.67I)

Tax geared penalty after 3 months

 

"(1) P may be liable to one or more penalties under this paragraph in respect of extended failures.

(2) In this paragraph an “extended failure” means a failure to make a return on or before the filing date which continues after the end of the period of 3 months beginning with the day after the filing date.

(3) P is liable to a penalty or penalties under this paragraph if (and only if)—

(a) HMRC decide at any time that such a penalty or penalties should be payable in accordance with sub-paragraph (4) or (6), and

(b) HMRC give notice to P specifying the date from which the penalty, or each penalty, is payable.

(4) HMRC may decide under sub-paragraph (3)(a) that a separate penalty should be payable in respect of each unpenalised extended failure in the tax year to date.

(5) In that case the amount of the penalty in respect of each failure is 5% of any liability to make payments which would have been shown in the return in question.

(6) HMRC may decide under sub-paragraph (3)(a) that a single penalty should be payable in respect of all the unpenalised extended failures in the tax year to date.

(7) In that case the amount of the penalty in respect of those failures is 5% of the sum of the liabilities to make payments which would have been shown in each of the returns in question.

(8) For the purposes of this paragraph, an extended failure is unpenalised if a penalty has not already been imposed in respect of it under this paragraph (whether in accordance with subparagraph (4) or (6)).

(9) The date specified in the notice under sub-paragraph (3)(b) in relation to a penalty—

(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 (2) in relation to the relevant extended failure.

(10) In sub-paragraph (9)(b) “the relevant extended failure” means—

(a) the extended failure in respect of which the penalty is payable, or

(b) if the penalty is payable in respect of more than one extended failure (in accordance with sub-paragraph (6)), the extended failure with the latest filing date." (FA 2009, Sch 55, para 6D)

Tax geared penalty after 3 months

LATE COMPANY TAX RETURN

 

Fixed penalty for initial default

"(1)     A company which is required to deliver a company tax return and fails to do so by the filing date is liable to a flat-rate penalty under this paragraph.

It may also be liable to a tax-related penalty under paragraph 18.

 

(2)     The penalty is—

(a)     £100, if the return is delivered within three months after the filing date, and

(b)     £200, in any other case.

 

(3)     The amounts are increased to £500 and £1000 for a third successive failure, that is, where—

(a)     the company is within the charge to corporation tax for three consecutive accounting periods (and at no time between the beginning of the first of those periods and the end of the last is it outside the charge to corporation tax),

(b)     a company tax return is required for each of those accounting periods,

(c)     the company was liable to a penalty under this paragraph in respect of each of the first two of those periods, and

(d)     the company is again liable to a penalty under this paragraph in respect of the third period.

 

(4)     The first or second period mentioned in sub-paragraph (3) may be a period ending before the self-assessment appointed day, in relation to which—

(a)     the reference in paragraph (b) to a company tax return shall be construed as a reference to a return under section 11 of the Taxes Management Act 1970, and

(b)     the references in paragraphs (c) and (d) to a penalty under this paragraph shall be construed as a reference to a penalty under section 94 of that Act." (FA 1998, Sch 18, para 17)

No fixed penalty if return delivered within time limit for filing statutory accounts

"A company is not liable to a penalty under paragraph 17 (flat rate penalty) if—

(a)     the period for which the return is required is one for which the company is required to deliver accounts under the Companies Act 2006, and

(b)     the return is delivered no later than the last day for the delivery of those accounts to the registrar of companies." (FA 1998, Sch 18, para 19)

Tax geared penalty for further delay (or initial delay if long filing period)

"(1)     A company which is required to deliver a company tax return for an accounting period and fails to do so—

(a)     within 18 months after the end of that period, or

(b)     if the filing date is later than that, by the filing date,

is liable to a tax-related penalty under this paragraph.

This is in addition to any flat-rate penalty under paragraph 17.

 

(2)     The penalty is—

(a)     10% of the unpaid tax, if the return is delivered within two years after the end of the period for which the return is required, and

(b)     20% of the unpaid tax, in any other case.

 

(3)     The “unpaid tax” means the amount of tax payable by the company for the accounting period for which the return was required which remains unpaid on the date when the liability to the penalty arises under sub-paragraph (1).

 

(4)     In determining that amount no account is to be taken of—

(a)     any relief under section 458 of the Corporation Tax Act 2010 (relief in respect of repayment, etc of loan) which is deferred under subsection (5) of that section, or

(b)     any relief under section 464B of that Act (relief in respect of return payment) which is deferred under subsection (5) of that section." (FA 1998, Sch 18, para 18)

LATE COMPANY TAX RETURN

SDLT

SDLT

- Failure to file SDLT return

 

Flat-rate penalty

"(1)     A person who is required to deliver a land transaction return and fails to do so by the filing date is liable to a flat-rate penalty under this paragraph.

He may also be liable to a tax-related penalty under paragraph 4.

(2)     The penalty is—

(a)     £100 if the return is delivered within three months after the filing date, and

(b)     £200 in any other case." (FA 2003, Sch 10, para 3)

Tax related penalty after 12 months

"(1)     A purchaser who is required to deliver a land transaction return in respect of a chargeable transaction and fails to do so within twelve months after the filing date is liable to a tax-related penalty under this paragraph.

This is in addition to any flat-rate penalty under paragraph 3.

(2)     The penalty is an amount not exceeding the amount of tax chargeable in respect of the transaction." (FA 2003, Sch 10, para 3)

Penalty for failing to comply with notice to deliver return

"(1)     If it appears to the Inland Revenue—

(a)     that a purchaser required to deliver a land transaction return in respect of a chargeable transaction has failed to do so, and

(b)     that the filing date has now passed,

they may issue a notice requiring him to deliver a land transaction return in respect of the transaction.

(2)     The notice must specify—

(a)     the transaction to which it relates, and

(b)     the period for complying with the notice (which must not be less than 30 days from the date of issue of the notice).

(3)     If the purchaser does not comply with the notice within the specified period, the Inland Revenue may apply to the tribunal for an order imposing a daily penalty.

(4)     On such an application the tribunal may direct that the purchaser shall be liable to a penalty or penalties not exceeding £60 for each day on which the failure continues after the day on which he is notified of the direction.

(5)     This paragraph does not affect, and is not affected by, any penalty under paragraph 3 or 4 (flat-rate or tax-related penalty for failure to deliver return)." (FA 2003, Sch 10, para 3)

- Failure to file SDLT return

IHT

IHT

- Late IHT account

 

"(1)     This section applies where a person (“the taxpayer”) fails to deliver an account under section 216 or 217 above.

(2)     The taxpayer shall be liable—

(a)     to a penalty of £100; and

(b)     to a further penalty not exceeding £60 for every day after the day on which the failure has been declared by a court or the [tribunal]4 and before the day on which the account is delivered.

(3)     If—

(a)     proceedings in which the failure could be declared are not commenced before the end of the relevant period, and

(b)     the taxpayer has not delivered the account by the end of that period,

he shall be liable to a further penalty of £100.

(4)     In subsection (3) above “the relevant period” means the period of six months beginning immediately after the end of the period given by section 216(6) or (7) or section 217 above (whichever is applicable).

(4A)     Without prejudice to any penalties under subsections (2) and (3) above, if—

(a)     the failure by the taxpayer to deliver the account continues after the anniversary of the end of the period given by section 216(6) or (7) (whichever is applicable), and

(b)     there would have been a liability to tax shown in the account,

the taxpayer shall be liable to a penalty of an amount not exceeding £3,000.

(5)     If the taxpayer proves that his liability to tax does not exceed a particular amount, the penalty under subsection (2)(a) above, together with any penalty under subsection (3) above, shall not exceed that amount.

(6)     A person shall not be liable to a penalty under subsection (2)(b) above if he delivers the account required by section 216 or 217 before proceedings in which the failure could be declared are commenced.

(7)     A person who has a reasonable excuse for failing to deliver an account shall not be liable by reason of that failure to a penalty under this section, unless he fails to deliver the account without unreasonable delay after the excuse has ceased." (IHTA 1984, s.245)

HMRC power to mitigate

"The Board may in their discretion mitigate any penalty, or stay or compound any proceedings for recovery of any penalty, and may also, after judgment, further mitigate or entirely remit the penalty." (IHTA 1984, s.245)

- Late IHT account

- Late return by person involved in creating non-resident trust

 

"(1)     A person who fails to make a return under section 218 above shall be liable—

(a)     to a penalty not exceeding £300; and

(b)     to a further penalty not exceeding £60 for every day after the day on which the failure has been declared by a court or the tribunal and before the day on which the return is made." (IHTA 1984, s.245A)

HMRC power to mitigate

"The Board may in their discretion mitigate any penalty, or stay or compound any proceedings for recovery of any penalty, and may also, after judgment, further mitigate or entirely remit the penalty." (IHTA 1984, s.253)

- Late return by person involved in creating non-resident trust

- Late notice of IHT variation of disposition

 

(1A)     A person who fails to comply with the requirements of section 218A above shall be liable—

(a)     to a penalty not exceeding £100; and

(b)     to a further penalty not exceeding £60 for every day after the day on which the failure has been declared by a court or the tribunal and before the day on which the requirements are complied with.

(1B)     Without prejudice to any penalties under subsection (1A) above, if a person continues to fail to comply with the requirements of section 218A after the anniversary of the end of the period of six months referred to in section 218A(1), he shall be liable to a penalty of an amount not exceeding £3,000." (IHTA 1984, s.245A)

Reasonable excuse

(5)     A person who has a reasonable excuse for failing to make a return [or to comply with the requirements of section 218A]2 shall not be liable by reason of that failure to a penalty under this section, unless he fails to make the return [or to comply with those requirements]2 without unreasonable delay after the excuse has ceased." (IHTA 1984, s.245A(5))

HMRC power to mitigate

"The Board may in their discretion mitigate any penalty, or stay or compound any proceedings for recovery of any penalty, and may also, after judgment, further mitigate or entirely remit the penalty." (IHTA 1984, s.253)

- Late notice of IHT variation of disposition

VAT

VAT

- Late VAT return or payment: default surcharge regime

 

VATA 1994, s.59 - 59B

- Late VAT return or payment: default surcharge regime

- Late EC sales statement

 

VATA 1994, s.66

- Late EC sales statement
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