A4.567D Harmonised penalties: common concepts—special reduction
HMRC has the power to reduce penalties below the statutory levels set by the legislation. This power, known as 'special reduction' is discretionary and may be exercised in cases where, because of 'special circumstances', HMRC thinks it right to do so. The power applies in respect of all the four main harmonised penalties, viz:
• the penalty for inaccuracies in a document (see A4.530)1
• the penalty for failure to notify liability (see A4.540)2
• the late filing penalty (see A4.550)3
• the late payment penalty (see A4.560)4
Special reduction is given in addition to any reduction already allowed for a low degree of culpability or for disclosure. The power of special reduction also applies to the penalty of dishonest conduct by a tax agent (see A4.588), but only if HMRC is proposing to impose the minimum penalty of £5,0005.
As well as straightforward reduction, special reduction also includes staying a penalty and agreeing a compromise in relation to proceedings for a penalty6.
Staying a penalty means stopping or postponing enforcement of the penalty. Agreeing a compromise allows HMRC to forgo part of the penalty.
Inability to pay or the existence of an overpayment by one taxpayer which would balance out the potential lost revenue for another taxpayer are not classed as special circumstances7. Note that the latter point does not rule out the possibility that an overpayment by the taxpayer liable to a late payment penalty can be considered as a special circumstance8.
Other than the above, there