Owner-Managed Businesses

Penalty reductions for failure to notify

Produced by Tolley in association with Philip Rutherford
  • 04 Apr 2022 08:10

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 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:

  1. unprompted, ie a voluntary disclosure made where the taxpayer has no reason to believe HMRC is aware of the failure to notify liability to tax, or

  2. prompted, ie following an HMRC challenge or nudge letter

CH73120

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 unprompted disclosures. This is designed to encourage disclosure and compliance.

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