Penalty reductions for failure to notify

Produced by Tolley in association with Philip Rutherford

The following Owner-Managed Businesses guidance note Produced 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
  • Unprompted disclosure
  • Prompted disclosure
  • Is the disclosure prompted or unprompted?
  • Quality of disclosure
  • Telling HMRC about the failure to notify (maximum reduction 30%)
  • Helping HMRC quantify the failure to notify (maximum reduction 40%)
  • Giving access to HMRC to ensure full disclosure (maximum reduction 30%)
  • More...

Penalty reductions for failure to notify

Introduction

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

The rate of thepenalty is based on thebehaviour of theperson and whether thedisclosure of an error has been prompted or unprompted. This rate is then applied to thepotential lost revenue (PLR), which is theamount of tax outstanding at a particular date. This is discussed in detail in thePenalties for failure to notify guidance note.

The rate of penalty can be reduced if thetaxpayer comes forward to inform HMRC about thefailure to notify and it can be reduced further by thenature and quality of theinformation and documentation provided to HMRC. This is known as thequality 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 theReasonable excuse for failure to notify guidance note.

Prompted and unprompted disclosure

The first thing to consider is whether thedisclosure is:

  1. unprompted, ie a voluntary disclosure of a failure to notify HMRC of a chargeability to tax, or

  2. prompted, ie on theback 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.

See theTable ― penalty for failure to notify chargeability to tax.

The penalties are higher thelonger thefailure goes on. In cases where themaximum penalty is 30% (in thecase of non-deliberate failures), if thedisclosure is made less than 12 months after any tax due becomes unpaid, thestatutory minimum is increased.

Therefore, therange of penalties for a non-deliberate failure is 0–30% for an unprompted disclosure and 10–30% for a

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