Finance Act 2009

Section 107

SCHEDULE 56U.K.Penalty for failure to make payments on time

Penalty for failure to pay taxU.K.

1(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.U.K.

(2)Paragraphs 3 to 8 set out—

(a)the circumstances in which a penalty is payable, and

(b)subject to paragraph 9, the amount of the penalty.

(3)If P's failure falls within more than one provision of this Schedule, P is liable to a penalty under each of those provisions.

(4)In the following provisions of this Schedule, the “penalty date”, in relation to an amount of tax, means [F1the day after the date specified in or for the purposes of column 4 of the Table in relation to that amount.].

[F10(5)Sub-paragraph (4) is subject to paragraph 2A.]

Assessments and determinations in default of returnU.K.

2U.K.The circumstances referred to in items 14, 17, 21 and 24 are where—

(a)P or another person is required to make or deliver a return falling within any item in the Table in Schedule 55,

(b)that person fails to make or deliver the return on or before the date by which it is required to be made or delivered, and

(c)if the return had been made or delivered as required, the return would have shown that an amount falling within any of items 1 to 10 was due and payable.

[F11Different penalty date for certain PAYE paymentsU.K.

2A(1)PAYE regulations may provide that, in relation to specified payments of tax falling within item 2, the penalty date is a specified date later than that determined in accordance with column 4 of the Table.U.K.

(2)In sub-paragraph (1) “specified” means specified in the regulations.]

Amount of penalty: occasional amounts and amounts in respect of periods of 6 months or moreU.K.

3(1)This paragraph applies in the case of—U.K.

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

(b)a payment of tax falling within 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).

(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.

4(1)This paragraph applies in the case of a payment of tax falling within item 5 or 6 in the Table.U.K.

(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.

Amount of penalty: PAYE and CIS amountsU.K.

5(1)Paragraphs 6 to 8 apply in the case of a payment of tax falling within item 2 or 4 in the Table.U.K.

(2)But those paragraphs do not apply in the case of a payment mentioned in paragraph 3(1)(b) or (c).

[F126[F13(1)P is liable to a penalty under this paragraph, in relation to each tax, each time that P makes a default in relation to a tax year.]U.K.

(2)For the purposes of this paragraph, P makes a default [F14in relation to a tax year] when P fails to make one of the following payments (or to pay an amount comprising two or more of those payments) in full on or before the date on which it becomes due and payable—

(a) a payment under PAYE regulations [F15of tax payable in relation to the tax year];

(b) a payment of earnings-related contributions within the meaning of the Social Security (Contributions) Regulations 2001 ( S.I. 2001/1004) [F16payable in relation to the tax year];

(c) a payment due under the Income Tax (Construction Industry Scheme) Regulations 2005 ( S.I. 2005/2045) [F17payable in relation to the tax year] ;

(d) a repayment in respect of a student loan due under the Education (Student Loans) (Repayments) Regulations 2009 ( S.I. 2009/470) or the Education (Student Loans) (Repayments) Regulations (Northern Ireland) 2000 (S.R. 2000 No. 121) [F18and due for the tax year] .

[F19(3)But where a failure to make one of those payments (or to pay an amount comprising two or more of those payments) would, apart from this sub-paragraph, constitute the first default in relation to a tax year, that failure does not count as a default in relation to that year for the purposes of a penalty under this paragraph.

(4)The amount of the penalty for a default made in relation to a tax year is determined by reference to—

(a)the amount of the tax comprised in the default, and

(b)the number of previous defaults that P has made in relation to the same tax year.

(5)If the default is P's 1st, 2nd or 3rd default in relation to the tax year, P is liable, at the time of the default, to a penalty of 1% of the amount of tax comprised in the default.

(6)If the default is P's 4th, 5th or 6th default in relation to the tax year, P is liable, at the time of the default, to a penalty of 2% of the amount of tax comprised in the default.

(7)If the default is P's 7th, 8th or 9th default in relation to the tax year, P is liable, at the time of the default, to a penalty of 3% of the amount of tax comprised in the default.

(7A)If the default is P's 10th or subsequent default in relation to the tax year, P is liable, at the time of the default, to a penalty of 4% of the amount of tax comprised in the default.]

(8)For the purposes of this paragraph—

(a)the amount of a tax comprised in a default is the amount of that tax comprised in the payment which P fails to make;

[F20(b)a previous default counts for the purposes of sub-paragraphs (5) to (7A) even if it is remedied before the time of the default giving rise to the penalty.]

[F21(8A)Regulations made by the Commissioners for Her Majesty's Revenue and Customs may specify—

(a)circumstances in which, for the purposes of sub-paragraph (2), a payment of less than the full amount may be treated as a payment in full;

(b)circumstances in which sub-paragraph (3) is not to apply.

(8B)Regulations under sub-paragraph (8A) may—

(a)make different provision for different cases, and

(b)include incidental, consequential and supplementary provision.]

(9)The Treasury may by order made by statutory instrument make such amendments to sub-paragraph (2) as they think fit in consequence of any amendment, revocation or re-enactment of the regulations mentioned in that sub-paragraph.]

7U.K.If any amount of the tax is unpaid after the end of the period of 6 months beginning with the penalty date, P is liable to a penalty of 5% of that amount.

8U.K.If any amount of the tax is unpaid after the end of the period of 12 months beginning with the penalty date, P is liable to a penalty of 5% of that amount.

Special reductionU.K.

9(1)If HMRC think it right because of special circumstances, they may reduce a penalty under any paragraph of this Schedule.U.K.

(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.

[F22Interaction with other penalties and late payment surchargesU.K.

9AU.K.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).]

Suspension of penalty during currency of agreement for deferred paymentU.K.

10(1)This paragraph applies if—U.K.

(a)P fails to pay an amount of tax when it becomes due and payable,

(b)P makes a request to HMRC that payment of the amount of tax be deferred, and

(c)HMRC agrees that payment of that amount may be deferred for a period (“the deferral period”).

(2)If P would (apart from this sub-paragraph) become liable, between the date on which P makes the request and the end of the deferral period, to a penalty under any paragraph of this Schedule for failing to pay that amount, P is not liable to that penalty.

(3)But if—

(a)P breaks the agreement (see sub-paragraph (4)), and

(b)HMRC serves on P a notice specifying any penalty to which P would become liable apart from sub-paragraph (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.

(5)If the agreement mentioned in sub-paragraph (1)(c) is varied at any time by a further agreement between P and HMRC, this paragraph applies from that time to the agreement as varied.

AssessmentU.K.

11(1)Where P is liable for a penalty under any paragraph of this Schedule HMRC must—U.K.

(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 [F23tax which was due or payable].

[F24(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.]

F25(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12(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.U.K.

(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.

AppealU.K.

13(1)P may appeal against a decision of HMRC that a penalty is payable by P.U.K.

(2)P may appeal against a decision of HMRC as to the amount of a penalty payable by P.

14(1)An appeal under paragraph 13 is to be treated in the same way as an appeal against an assessment to the tax concerned (including by the application of any provision about bringing the appeal by notice to HMRC, about HMRC review of the decision or about determination of the appeal by the First-tier Tribunal or Upper Tribunal).U.K.

(2)Sub-paragraph (1) does not apply—

(a)so as to require P to pay a penalty before an appeal against the assessment of the penalty is determined, or

(b)in respect of any other matter expressly provided for by this Act.

15(1)On an appeal under paragraph 13(1) that is notified to the tribunal, the tribunal may affirm or cancel HMRC's decision.U.K.

(2)On an appeal under paragraph 13(2) that is notified to the tribunal, the tribunal may—

(a)affirm HMRC's decision, or

(b)substitute for HMRC's decision another decision that HMRC had power to make.

(3)If the tribunal substitutes its decision for HMRC's, the tribunal may rely on paragraph 9—

(a)to the same extent as HMRC (which may mean applying the same percentage reduction as HMRC to a different starting point), or

(b)to a different extent, but only if the tribunal thinks that HMRC's decision in respect of the application of paragraph 9 was flawed.

(4)In sub-paragraph (3)(b) “flawed” means flawed when considered in the light of the principles applicable in proceedings for judicial review.

(5)In this paragraph “tribunal” means the First-tier Tribunal or Upper Tribunal (as appropriate by virtue of paragraph 14(1)).

Reasonable excuseU.K.

16[F26(1) If P satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for a failure to make a payment— U.K.

(a)liability to a penalty under any paragraph of this Schedule does not arise in relation to that failure, and

(b)the failure does not count as a default for the purposes of paragraphs 6, 8B, 8C, 8G and 8H.]

(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.

Double jeopardyU.K.

17U.K.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.

InterpretationU.K.

18(1)This paragraph applies for the construction of this Schedule.U.K.

(2)“HMRC” means Her Majesty's Revenue and Customs.

(3)References to tax include construction industry deductions under Chapter 3 of Part 3 of FA 2004.

(4)References to a determination, in relation to an amount payable under PAYE regulations or under Chapter 3 of Part 3 of FA 2004, include a certificate.

(5)References to an assessment to tax, in relation to inheritance tax and stamp duty reserve tax, are to a determination.