Details of the Schedule
4.Paragraph 1 specifies in a Table all the returns or documents required to be made or delivered by a person which, if not made or delivered to HM Revenue & Customs (HMRC) on or before the filing date, would result in that person being liable to a penalty.
5.Paragraph 1(3) provides for more than one penalty to be charged in respect of the same failure. Each penalty can be applied and pursued in isolation and a person has a right of appeal against each of them.
Amount of penalty: occasional returns and annual returns
6.Paragraph 2 details the returns to which an annual or occasional penalty applies.
7.Paragraph 3 provides that a failure to submit a return listed in paragraph 2 results in P becoming liable to a penalty of £100.
8.Paragraph 4(1) sets out the conditions for charging daily penalties where the delay in filing a return is prolonged.
9.Paragraph 4(2) provides for a penalty of £10 for each day that the failure to submit a return continues for a period of up to 90 days beginning with the date specified in the notice under paragraph 4(1).
10.Paragraph 4(3) provides for the date specified in the notice from which the penalty is payable to be earlier than the date on which the notice is given. This is because HMRC will be unaware of certain returns for taxes such as SDLT and IHT until they are received. The date specified in the notice may not be earlier than the end of the period of three months after the filing date.
11.Paragraph 5(1) provides for a penalty to be payable if a return is still outstanding six months after the filing date and there would have been a liability to tax shown in the return.
12.Paragraph 5(2) provides for that penalty to be the greater of £300 or 5 per cent of the liability to tax shown in the return.
13.Paragraph 6(1) provides for a penalty to be payable if a return is still outstanding 12 months after the filing date and there would have been a liability to tax shown in the return.
14.Paragraph 6(2) provides for the details of a penalty to be payable where, by failing to make the return, a person withholds information which would enable or assist HMRC to assess the person’s liability to tax:
15.Paragraph 6(3) states that in any other case, the penalty is to be the greater of £300 or 5 per cent of the liability shown in the return.
Amount of penalty: CIS returns
16.Paragraph 7 states that the following paragraphs, which provide for a penalty, apply only for CIS returns.
17.Paragraph 8 provides for a penalty of £100 if the taxpayer fails to submit a return by the due date.
18.Paragraph 9 provides for a penalty of £200 if the failure continues after the end of a period of two months beginning with the penalty date.
19.Paragraph 10 provides for a penalty of the greater of £300 or 5 per cent of the liability to make payments which would have been shown on the return if the failure continues after the end of the period of six months beginning with the penalty date and there would have been a liability to make payments to HMRC shown in the return in question.
20.Paragraph 11 provides for an additional penalty if the failure continues after the end of the period of 12 months beginning with the penalty date and there would have been a liability to make payments to HMRC shown in the return in question.
21.Paragraph 11(2) provides for higher penalties where by failing to make the return, the taxpayer withholds information, which would enable or assist HMRC to assess the amount of CIS deductions that the taxpayer is liable to pay.
22.Paragraph 11(5) states that in any other case, the penalty, if the failure continues after the end of the period of 12 months beginning with the penalty date, is the greater of £300 or 5 per cent of the liability to make payments which would have been shown on the return in question.
23.Paragraph 13 provides for fixed-sum penalties arising from late filing a CIS return to be capped to £3,000 where the person has failed to make a first CIS return by the due date.
Reductions for disclosure
24.Paragraphs 14 and 15 provide details of reductions for disclosure in penalties under paragraphs 6, 11(3) or 11(4) where the taxpayer discloses relevant information, which has been withheld by a failure to make a return.
25.Paragraph 14(2) defines what is meant by disclosure of relevant information. It sets out three distinct elements, all of which are required for the maximum reduction: admission – telling HMRC that information has been withheld; taking active steps – giving HMRC reasonable help in assessing any tax unpaid as a result of the information being withheld; and access – allowing HMRC access to records to check the extent of any liability.
26.Paragraph 14(3) sets out two types of disclosure: unprompted – where the taxpayer has no reason to believe that HMRC have discovered or are about to discover the relevant information; prompted – all other disclosures.
27.Paragraph 14(4) defines the quality of disclosure in terms of timing (how promptly the disclosure was made), nature (the level of evidence provided and degree of access to test the disclosure) and extent (how complete the disclosure may be).
28.Paragraph 15 describes how the penalties must be reduced, depending upon the quality of the disclosure.
29.Paragraph 15(5) states that HMRC must not reduce the penalty under this paragraph to below the minimum amount set under paragraph 14.
Special reduction
30.Paragraph 16(1) gives HMRC a power to reduce any penalty under the Schedule including the minimum amount penalty where they think it right because of special circumstances.
Interaction with other penalties and late payment surcharges
31.Paragraph 17 sets out to what penalties HMRC should charge if a taxpayer is liable to more than one penalty which is determined by reference to the same tax liability (which could for example include late payment surcharges, penalties for incorrect returns etc), subject to some exclusions set out in paragraph 18(2). Paragraph 18 states that where a taxpayer is liable to a penalty under this Schedule, it is to be reduced by the amount of any other penalty incurred by P that is determined by reference to the same tax liability.
32.Paragraph 17(3) states that tax-geared penalties under this schedule may not exceed 100 per cent of the relevant liability to tax.
Assessment
33.Paragraph 18 sets out the mechanisms by which HMRC must assess, notify and enforce penalties which are to follow the same procedures as for assessments to tax. All penalties must be paid before the end of the period of 30 days beginning with the day on which the notification of the penalty is issued.
34.Paragraph 19 states that the assessment of any penalty under this Schedule must be made on or before the later of two dates. The first date is the last day of the two year period beginning with the filing date. The second date is the last day of the period of 12 months beginning with the end of the appeal period for the assessment of the amount of tax shown on the return, or, where there is no such assessment, the date on which the amount of tax is ascertained.
Appeal
35.Paragraph 20 provides appeal rights against decisions by HMRC to impose a penalty and of the amount of the penalty.
36.Paragraph 21(2) provides that a person is not required to pay a penalty before an appeal against the assessment of the penalty is determined.
37.Paragraph 22(3) provides that, if the tribunal substitutes its decision for HMRC’s, then it may rely on paragraph 17 (special reduction) to the same extent as HMRC or to a different extent to HMRC only if the tribunal thinks HMRC’s decision in relation to paragraph 17 is flawed. Flawed is defined in paragraph 23(4) as meaning in light of the principles applicable in proceedings for judicial review.
Reasonable excuse
38.Paragraph 23(1) provides that no penalty arises in relation to any failure under this Schedule if the person satisfies HMRC or (on appeal) the tribunal that there is a reasonable excuse for the failure.
39.Paragraph 23(2) contains provisions about what is precluded from being a reasonable excuse.
Determination of penalty geared to tax liability where no return made
40.Paragraph 24(1) provides that a liability to tax that would have been shown in a return means an amount that, if a complete and accurate return had been delivered on the filing date would have been shown as due or payable by the taxpayer.