Legislation – Finance Act 2021
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SCHEDULE 26Penalties for failure to pay tax
PART 1Introduction
Introduction
1
F1(1)
This Schedule makes provision for penalties to be payable by a person who, in relation to a tax dealt with by one of the following tables, fails to pay an amount specified in column 2 of the table (“the tax due”) on or before the date specified in column 3 of the table (“the specified date”).
Income tax or capital gains tax
|
1 |
Amount of income tax or capital gains tax payable under section 55 of TMA 1970 |
The date determined in accordance with section 55 of TMA 1970 as the date by which the amount must be paid |
|
2 |
Amount of income tax or capital gains tax payable under section 59B(3) or (4) of TMA 1970 |
The date specified in section 59B(3) or (4) of TMA 1970 as the date by which the amount must be paid |
|
3 |
Amount of income tax or capital gains tax payable under section 59B(5) or (6) of TMA 1970 |
The date specified in section 59B(5) or (6) of TMA 1970 as the date by which the amount must be paid |
|
4 |
Amount of income tax or capital gains tax payable under section 59B(5A) of TMA 1970 |
The date specified in section 59B(5A) of TMA 1970 as the date by which the amount must be paid |
|
5 |
Amount of income tax or capital gains tax payable under section 59BA(4) or (5) of TMA 1970 |
The date specified in section 59BA(4) or (5) of TMA 1970 as the date by which the amount must be paid |
|
6 |
Amount of income tax payable under regulations under section 244L(2)(a) of FA 2004 |
The due date determined by or under the regulations |
|
7 |
Amount of income tax shown in a return under section 254(1) of FA 2004 |
The date specified in section 254(5) of FA 2004 as the date by which the amount must be paid |
|
8 |
Amount of income tax or capital gains tax (not within item 4) shown in an assessment or determination made by HMRC in default of a return (see paragraph 3) |
The date by which the amount would have been required to be paid if it had been shown in the return in question |
|
9 |
Amount of income tax or capital gains tax (not within item 1 or 3) shown in an amendment or correction of a return |
The later of—
|
|
10 |
Amount of income tax or capital gains tax (not within item 1 or 3) shown in an assessment or determination made by HMRC otherwise than in default of a return (see paragraph 3) |
The later of—
|
Value added tax
|
1 |
Amount of value added tax payable under section 25(1) of VATA 1994 F2except an amount within item 3, 4 or 5, or that is an annual accounting scheme instalment |
The date determined by or under regulations under section 25 of VATA 1994 as the date by which the amount must be paid |
|
2 |
F3. . . |
F3. . . |
|
3 |
Amount of value added tax shown in an assessment made by HMRC in default of a return (see paragraph 3) |
The date by which the amount would have been required to be paid if it had been shown in the return in question |
|
4 |
Amount of value added tax shown in an amendment or correction of a return |
The date falling 30 days after the date on which the amendment or correction is made |
|
5 |
Amount of value added tax shown in an assessment made by HMRC otherwise than in default of a return (see paragraph 3) |
The date falling 30 days after the date on which the assessment is made |
F4(2)
In the table relating to value added tax, “annual accounting scheme instalment”
means an amount payable to HMRC by virtue of regulation 50(2)(a) of the Value Added Tax Regulations 1995 (S.I. 1995/2518).
2
In this Schedule, “HMRC” means Her Majesty’s Revenue and Customs.
Assessments and determinations in default of return
3
(1)
This paragraph applies for the interpretation of the tables in paragraph 1.
(2)
An assessment or determination by HMRC is made in default of a return if it is made where—
(a)
a person is required to make or deliver a return which falls within—
(i)
any group of returns in the Table in paragraph 2 of Schedule 24, or
(ii)
any item in the Table in paragraph 1 of Schedule 55 to FA 2009,
(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 the relevant table in paragraph 1 was due and payable.
(3)
An assessment or determination by HMRC is made otherwise than in default of a return if it is made otherwise than as described in sub-paragraph (2).
PART 2Liability to a penalty
No penalty if payment in full before end of 15 day period
4
No penalty is payable if—
(a)
the tax due is paid in full before the end of the 15 day period, or
(b)
the 15 day time to pay condition is met,
(but see paragraph 7).
First penalty: tax remains due at end of 15 day period
5
(1)
A penalty is payable under this paragraph if—
(a)
the tax due is not paid in full before the end of the 15 day period, and
(b)
the 15 day time to pay condition is not met.
(2)
If the tax due is paid in full after the end of the 15 day period but before the end of the 30 day period, the amount of the penalty is amount A.
(3)
If the tax due is not paid in full before the end of the 30 day period, the amount of the penalty is—
(a)
if the 30 day time to pay condition is met, amount A, and
(b)
if the 30 day time to pay condition is not met, the total of amount A and amount B,
(but see paragraph 7).
(4)
Amount A is F53% of so much of the tax due as is unpaid at the end of the 15 day period.
(5)
Amount B is F63% of so much of the tax due as is unpaid at the end of the 30 day period.
Meaning of “15 day time to pay condition” and “30 day time to pay condition”
6
(1)
The 15 day time to pay condition is met if a time to pay agreement is made (whether before or after the end of the 15 day period) as a result of proposals for paying the tax due made by the person before the end of the 15 day period.
(2)
The 30 day time to pay condition is met if a time to pay agreement is made (whether before or after the end of the 30 day period) as a result of proposals for paying the tax due made by the person after the end of the 15 day period, but before the end of the 30 day period.
First penalty: effect of breaking time to pay agreement
7
(1)
This paragraph applies where—
(a)
the 15 day time to pay condition or the 30 day time to pay condition is met, and
(b)
the person breaks the time to pay agreement by virtue of which the condition was met.
(2)
If HMRC give the person notice that a penalty is payable under paragraph 5, a penalty is payable under that paragraph as if the condition in question had never been met.
Second penalty: tax remains due at end of 30 day period
8
(1)
A penalty is payable under this paragraph if any amount of the tax due is unpaid at the end of the 30 day period.
(2)
The amount of the penalty is calculated by applying the penalty rate, during the further penalty period, to so much of the tax due as is from time to time unpaid.
(3)
The penalty rate is F710% per annum.
(4)
The further penalty period is the period—
(a)
beginning with the day after the last day of the 30 day period, and
(b)
ending with the day on which the tax due is paid in full.
(5)
But if a time to pay agreement has effect during the further penalty period, the further penalty period does not include the period—
(a)
beginning with the relevant day, and
(b)
ending with the day on which the tax due is paid in full,
(but see paragraph 9).
(6)
The relevant day is the day on which the person makes the proposals to HMRC for paying the tax due, as a result of which the time to pay agreement is made.
Second penalty: effect of breaking time to pay agreement
9
(1)
This paragraph applies where—
(a)
a time to pay agreement has effect during the further penalty period, and
(b)
the person breaks the time to pay agreement.
(2)
If HMRC give the person notice that a penalty is payable under paragraph 8, a penalty is payable under that paragraph as if the time to pay agreement had never had effect.
Interpretation of Part 2
10
(1)
This paragraph gives the meaning of terms used in this Part of this Schedule.
(2)
The “15 day period”, in relation to tax due, is the period of 15 days beginning with the day after the specified date.
(3)
The “30 day period”, in relation to tax due, is the period of 30 days beginning with the day after the specified date.
(4)
A “time to pay agreement” is an agreement between HMRC and a person that payment of an amount of tax due (the “deferred amount”) may be deferred for a period (the “deferral period”).
(5)
A person breaks a time to pay agreement if—
(a)
the person fails to pay the deferred amount when the deferral period ends, or
(b)
the deferral is subject to the person complying with a condition (including a condition that part of the deferred amount be paid during the deferral period) and the person fails to comply with it.
(6)
If a time to pay agreement is varied at any time by a further agreement between the person and HMRC, references in this Schedule to the agreement include the agreement as varied.
Power to amend figures by regulations
11
The Commissioners for HMRC may by regulations amend this Part of this Schedule so as to—
(a)
change references to 15 days (or to another number of days resulting from the previous exercise of powers under this sub-paragraph) to references to a greater or lesser number of days;
(b)
change references to 30 days (or to another number of days resulting from the previous exercise of powers under this sub-paragraph) to references to a greater or lesser number of days;
(c)
increase or reduce the percentage specified in paragraph 5(4);
(d)
increase or reduce the percentage specified in paragraph 5(5);
(e)
increase or reduce the percentage specified in paragraph 8(3).
PART 3Supplementary provision
Reasonable excuse
12
(1)
Liability to a penalty under this Schedule does not arise in respect of a failure to make a payment if the person satisfies HMRC (or on appeal, the tribunal) that the person had a reasonable excuse for the failure.
(2)
For this purpose—
(a)
an insufficiency of funds is not a reasonable excuse unless attributable to events outside the person’s control,
(b)
where the person relies on another person to do anything, that is not a reasonable excuse unless the first person took reasonable care to avoid the failure, and
(c)
where the person had a reasonable excuse for the failure but the excuse has ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.
(3)
In this paragraph “tribunal” means the First-tier Tribunal or Upper Tribunal (as appropriate by virtue of paragraph 20(1)).
Special reduction
13
(1)
If HMRC think it right because of special circumstances, they may reduce a penalty under 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 a taxpayer is balanced by a potential over-payment by a taxpayer.
(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.
Double jeopardy
14
A person is not liable to a penalty under this Schedule in respect of a failure in respect of which the person has been convicted of an offence.
Interaction with other penalties
15
In the application of the following provisions, no account is to 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).
Assessments
16
(1)
Where a person is liable to a penalty under this Schedule HMRC may assess the penalty.
(2)
HMRC may by regulations make provision for HMRC to assess a penalty under paragraph 8 at times or intervals before the end of the further penalty period.
(3)
Where HMRC assess a penalty they must notify the person and state in the notice—
(a)
the failure to pay the tax due, for which the person is liable to the penalty,
(b)
the amount of the penalty, and
(c)
how that amount has been calculated (including the period to which the penalty relates).
(4)
A penalty under this Schedule must be paid before the end of the period of 30 days beginning with the day on which notification of the penalty is issued.
(5)
An assessment of a penalty under 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 in this Schedule),
(b)
may be enforced as if it were an assessment to tax, and
(c)
may be combined with an assessment to tax.
17
(1)
A supplementary assessment may be made in respect of a penalty if an earlier assessment is based on an amount of tax due and payable that is found by HMRC to be an underestimate or insufficient.
(2)
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 amend the assessment so that it is based upon the correct amount.
(3)
An amendment under sub-paragraph (2)—
(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 18.
Time limit for assessments
18
(1)
An assessment of a penalty under this Schedule in respect of any amount must be made on or before the later of date A and (where it applies) date B.
(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 3 of the relevant table in paragraph 1 (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 (ignoring any possibility of an appeal out of time), or
(b)
an appeal that has been brought has not been determined or withdrawn.
Appeals
19
(1)
A person may appeal against a decision of HMRC that the person is liable to a penalty under this Schedule.
(2)
A person liable to a penalty under this Schedule may appeal against a decision of HMRC as to the amount of the penalty.
20
(1)
An appeal under paragraph 19 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’s review of the decision or about determination of the appeal by the First-tier Tribunal or Upper Tribunal).
(2)
Sub-paragraph (1) does not apply—
(a)
so as to require the person 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 Schedule.
21
(1)
On an appeal under paragraph 19(1) that is notified to the tribunal, the tribunal may affirm or cancel HMRC’s decision.
(2)
On an appeal under paragraph 19(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 decision in relation to a penalty under this Schedule, the tribunal may rely on paragraph 13—
(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 13 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 20(1)).
Regulations: supplementary provision
22
(1)
Regulations under this Schedule are to be made by statutory instrument.
(2)
A statutory instrument containing regulations under paragraph 11 (powers to amend Part 2) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.
(3)
A statutory instrument containing regulations under paragraph 16 (assessments) is subject to annulment in pursuance of a resolution of the House of Commons.
(4)
Regulations under this Schedule may include transitional, transitory and saving provision.