Penalty reductions for failure to notify

By Tolley in association with Philip Rutherford

The following Owner-Managed Businesses guidance note by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Penalty reductions for failure to notify
  • Introduction
  • Prompted and unprompted disclosure
  • Quality of disclosure
  • Practical implications
  • Method of calculation
  • Special reduction


Under the penalty legislation introduced by FA 2008, Sch 41, where a failure to notify has occurred, the taxpayer is exposed to a penalty.

The rate of the penalty is based on the behaviour of the person and whether the disclosure of an error has been prompted or unprompted. This rate is then applied to the potential lost revenue (PLR), which is the amount of tax outstanding at a particular date. This is discussed in detail in the Penalties for failure to notify guidance note.

The rate of penalty can be reduced if the taxpayer comes forward to inform HMRC about the failure to notify and it can be reduced further by the nature and quality of the information and documentation provided to HMRC. This is known as the quality of disclosure and is discussed in this guidance note.

A penalty for failure to notify can be completely reduced where a taxpayer has a reasonable excuse. See the Reasonable excuse for failure to notify guidance note.

Prompted and unprompted disclosure

The first thing to consider is whether the disclosure is:

  • unprompted, ie a voluntary disclosure of a failure to notify HMRC of a chargeability to tax, or
  • prompted, ie on the back of a HMRC challenge or fear of HMRC discovery of a failure to notify

A disclosure must fall into one of these categories. There is both a smaller range of potential penalties and a lower highest possible penalty for voluntary disclosures. This is designed to encourage disclosure and compliance.

FA 2008, Sch 41, paras 6, 13

The penalties are higher the longer the failure goes on. In cases where the maximum penalty is 30% (in the case of non-deliberate failures),

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