Suspending a penalty

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Suspending a penalty
  • Background
  • When can a penalty be suspended
  • The suspension conditions
  • Notice to suspend a penalty
  • When can a suspended penalty become payable?
  • Appeals

This guidance note should be read in conjunction with the Overview of the three penalties introduced from 1 April 2010 guidance note.


HMRC has the discretion to suspend certain penalties if they consider that it would help to influence the taxpayers behaviour by encouraging and supporting the business to try and meet their tax obligations. HMRC considers that it may be more cost-effective in the longer term to give the business a specific amount of time to make improvements to their record-keeping than pay a penalty now. This should enable the business to ensure that any future returns, etc are accurate when they are filed which will enable HMRC to spend less time auditing this business which is a better outcome for both sides. Suspension will not be appropriate in all circumstances where the business has failed to take reasonable care.

HMRC cannot suspend any failure to notify or VAT and excise wrongdoing penalties. Therefore, only businesses that have submitted an inaccurate return or document can approach HMRC to ascertain whether a penalty could be suspended. HMRC will only consider suspending penalties that resulted from a failure to take reasonable care (ie a careless penalty). The penalty cannot be suspended if it results from:

  • a deliberate inaccuracy
  • an error in a person’s document attributable to another person
  • a failure to take reasonable steps to notify an under-assessment

CH83100, CH83133; FA 2007, Sch 24, para 14

See the diagram below for suspending penalties for an inaccurate VAT return.

Please see the following fact sheet issued by HMRC if it elects to suspend a penalty: CC/FS10 .

When can a penalty be suspended

HMRC must be able to identify any careless future inaccuracies

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