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V3a. Penalties for late payment

Imposition of penalty

"(1) A penalty is payable by a person (“P”) where P fails to pay an amount of tax specified in column 3 of the Table below on or before the date specified in column 4." (FA 2009, Sch 56, para 1)

 

See table here

Imposition of penalty

Amount of penalty​

 

(1) This paragraph applies in the case of—

(a) a payment of tax falling within any of items 1, 3, 3B, 3C and 7 to 24 in the Table,

(aza) a payment of tax falling within items 11AA or 11AB in the Table,

(aa) a payment of tax falling within item 6ZB in the Table,

(b) a payment of tax falling within item 4A or item 2 or 4 which relates to a period of 6 months or more, and

(c) a payment of tax falling within item 2 which is payable under regulations under section 688A of ITEPA 2003 (recovery from other persons of amounts due from managed service companies).

(ca) an amount in respect of apprenticeship levy falling within item 4A which is payable by virtue of regulations under section 106 of FA 2016 (recovery from third parties).

(2) P is liable to a penalty of 5% of the unpaid tax.

(3) If any amount of the tax is unpaid after the end of the period of 5 months beginning with the penalty date, P is liable to a penalty of 5% of that amount.

(4) If any amount of the tax is unpaid after the end of the period of 11 months beginning with the penalty date, P is liable to a penalty of 5% of that amount." (FA 2009, Sch 56, para 3)

"(1) This paragraph applies in the case of a payment of tax falling within any of items 5 to 6ZAA in the Table.

(2) P is liable to a penalty of 5% of the unpaid tax.

(3) If any amount of the tax is unpaid after the end of the period of 3 months beginning with the penalty date, P is liable to a penalty of 5% of that amount.

(4) If any amount of the tax is unpaid after the end of the period of 9 months beginning with the penalty date, P is liable to a penalty of 5% of that amount." (FA 2009, Sch 56, para 4)

For PAYE and CIS see paras 5 - 8

Amount of penalty​

Time to pay agreement in place: no penalty

"(1) This section applies if—

(a) a person (“P”) fails to pay an amount of tax falling within the Table in subsection (5) when it becomes due and payable,

(b) P makes a request to an officer of Revenue and Customs that payment of the amount of tax be deferred, and

(c) an officer of Revenue and Customs agrees that payment of that amount may be deferred for a period (“the deferral period”).

(2) P is not liable to a penalty for failing to pay the amount mentioned in subsection (1) if—

(a) the penalty falls within the Table, and

(b) P would (apart from this subsection) become liable to it between the date on which P makes the request and the end of the deferral period." (FA 2009, s.108)

See FA 2009, Sch 56, para 10 to similar effect for other taxes.

Taxes covered

"(5) The taxes and penalties referred to in subsections (1) and (2) are—

Value added tax:    Surcharge under section 59(4) or 59A(4) of VATA 1994
Aggregates levy:   Penalty interest under paragraph 5 of Schedule 5 to FA 2001
Climate change levy:    Penalty interest under paragraph 82 of Schedule 6 to FA 2000
Landfill tax:   Penalty interest under paragraph 27(2) of Schedule 5 to FA 1996
Insurance premium tax:    Penalty under paragraph 15(2) or (3) of Schedule 7 to FA 1994 which is payable by virtue of paragraph 15(1)(a) of that Schedule.
Any duty of excise:    Penalty under section 9(2) or (3) of FA 1994 which is imposed for a failure to pay an amount of any duty of excise or an amount payable on account of any such duty." 
(FA 2009, s.108)

"(10) In this section, except in the entries in the Table, “penalty” includes surcharge and penalty interest." (FA 2009, s.108)

Breaking the agreement

 

"(3) But if—

(a) P breaks the agreement (see subsection (4)), and

(b) an officer of Revenue and Customs serves on P a notice specifying any penalty to which P would become liable apart from subsection (2),

P becomes liable, at the date of the notice, to that penalty.

(4) P breaks an agreement if—

(a) P fails to pay the amount of tax in question when the deferral period ends, or

(b) the deferral is subject to P complying with a condition (including a condition that part of the amount be paid during the deferral period) and P fails to comply with it." (FA 2009, s.108)

 

Varying the agreement

"(6) If the agreement mentioned in subsection (1)(c) is varied at any time by a further agreement between P and an officer of Revenue and Customs, this section applies from that time to the agreement as varied." (FA 2009, s.108)

- Only applies to defaults during currency of agreement 

 

"[49] This provision relates to deferred payments during the currency of an agreement to that effect. The agreement must be reached prior to the default. This was not the situation that arose in the appeal before us. Whilst the Appellant was making monthly payments to HMRC, the incontrovertible fact in this appeal is that those payments were not in accordance with an agreed TTP plan in respect of the period 12/20. The Appellant cannot, therefore, rely on the provisions of s. 108." (Desser & Co Ltd v. HMRC [2023] UKFTT 662 (TC), Judge Manyarara)

Time to pay agreement in place: no penalty
Reasonable excuse

Special reduction

 

"(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—

(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—

(a) staying a penalty, and

(b) agreeing a compromise in relation to proceedings for a penalty." (FA 2009, Sch 55, para 9)

Special reduction

Reasonable excuse

 

"(1) Liability to a penalty under any paragraph of this Schedule does not arise in relation to a failure to make a payment 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 16)

See A3: 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 16)

Double jeopardy

Interaction with other penalties

 

"In the application of the following provisions, no account shall be taken of a penalty under this Schedule—

(a) section 97A of TMA 1970 (multiple penalties),

(b) paragraph 12(2) of Schedule 24 to FA 2007 (interaction with other penalties), and

(c) paragraph 15(1) of Schedule 41 to FA 2008 (interaction with other penalties)." (FA 2009, Sch 55, para 9A)

Interaction with other penalties
PAYE payment tolerance

PAYE payment tolerance

 

"(1) A payment that is less than the full amount due under regulation 67G(2) (payments to and recoveries from HMRC for each tax period), as adjusted by regulation 67H (payments due and recoveries from HMRC for each tax period: returns under regulation 67E(6)) where appropriate, will for the purposes of paragraph 6(2) of Schedule 56 to the Finance Act 2009 (amount of penalty: PAYE and CIS) be treated as payment of the full amount if the difference between the full amount and the amount paid is no more than £100 (“the tolerance”), but this is subject to paragraphs (2) and (3)." (SI 2003/2682, r.69A)

Disapplication for supplemental return correcting inaccuracy after end of tax year

"(2) Paragraph (1) does not apply where—

(a) the payment relates to a return which is correcting information given in a return filed in respect of a relevant payment made in an earlier tax month, and

(b) the return is delivered after 19th April following the end of the tax year in question.(SI 2003/2682, r.69A)

 

Sum paid includes additional amounts: apply tolerance to total sum

"(3) If the total sum paid by the employer to HMRC for the tax period includes not only the amount due under regulation 67G(2), as adjusted by regulation 67H where appropriate, but also one or more of—

(a) any earnings-related contributions (as defined by regulation 1(2) of the SSC Regulations 2001),

(b) any payment under regulation 7(1) of the Income Tax (Construction Industry Scheme) Regulations 2005, or

(c) any repayment due under the Student Loans Regulations,

the tolerance is applied to the total sum paid to HMRC for the tax period to which the payments relate." (SI 2003/2682, r.69A)

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