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Sometimes taxpayers get it wrong. HMRC suspended penalties can be agreed if certain conditions are met.

HM Revenue & Customs (HMRC) have the power to levy a financial penalty on the taxpayer based on a percentage of the tax again.  That percentage can vary widely. based on a number of facts, including whether it concerns an offshore matter or not.

How are penalties calculated?

The way that penalties are calculated changed on 6 April 2009.  Any tax irregularity since that date is based upon a taxpayer’s behaviour.  If HMRC accept that a taxpayer’s behaviour has been no more than careless (as opposed to deliberate), there can be a suspended penalty .

Providing the same tax offence is not recommitted during the suspension period, the penalty is not payable.

What are penalty conditions?

These are designed for the relevant circumstances in order to prevent any further loss of tax to the Exchequer.

HMRC will agree penalty conditions proving they are SMART:

  • Specific – directly related to the business or individual
  • Measurable – the person will need to be able to ‘evidence’ that the condition has been met
  • Achievable – it must be in the person’s power to meet the condition
  • Realistic – conditions cannot be unreasonable, (e.g. it would not be reasonable to require a small sole trader business to employ a full-time bookkeeper)
  • Time bound – there must be a clear date by which the condition must be met

How long may a suspension period last?

The suspension period can be anything up to two years.  The suspension period must be long enough for the taxpayer to satisfy the SMART (specific) conditions, but no longer.  In reality, some suspension conditions relate to the submission of the next tax return which may only be a month away.

Why are HMRC resisting suspending penalties?

HMRC could be concerned that the taxpayer may:

  • Commit a deliberate inaccuracy for the same compliance check.
  • Fail to remedy problems already identified during the compliance check.
  • Have a poor compliance history.
  • Fail to make and complete a timely disclosure of inaccuracies identified by the compliance check.
  • Tax Returns and payments are overdue

What can be done?

On the basis that HMRC considers the taxpayer’s behaviour to be careless, clear and appropriate suspension conditions need to be identified.  If HMRC will not agree to a suspended penalty, then an appeal can be lodged with the First Tier Tribunal.

HMRC suspended penalties cannot be assumed but if the behaviour is careless, please contact either myself or Andy for advice.

If you cannot find the information you need on our website, please contact Paul Malin or Andy Maxfield using our contact form or email directly to pmalin@hwca.com or amaxfield@hwca.com

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