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Penalties for failure to notify
Every year HM Revenue & Customs (HMRC) undertakes 'Compliance Checks' of Individual, Partnership and Company Tax Returns to ensure those taxpayers are paying the correct amount of tax and claiming the right amount of allowances and reliefs. HMRC use financial penalties to try to stop people who 'fail to notify' their chargeability to tax from gaining an unfair advantage over those who do.
On this page:
Has HMRC powers to charge a failure to notify penalty?
Under legislation introduced on 1 April 2010, HMRC launched a new penalty regime for failure to notify cases. The new legislation seeks to harmonise the different penalty powers that previously existed for individual taxes or duties.
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What taxes/duties and tax periods does the new penalty regime encompass?
The new penalty applies to failures that arise on or after 1 April 2010 for the majority of taxes and duties, including Income Tax, Capital Gains Tax, Corporation Tax, National Insurance (Class 4) and VAT.
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What conditions or circumstances must be satisfied before a penalty can be charged?
HMRC can charge a failure to notify penalty in either of the following situations: -
- Someone becomes liable to tax but does not tell HMRC on time;
- Someone does not register for VAT on time; and
- Someone does not tell HMRC on time that they have set up or intend carrying out a taxable activity that must be registered with HMRC.
The new regime also introduces powers to allow HMRC to potentially seek payment of a company penalty from a Director and/or the Company Secretary provided that the failure was deliberately attributable to the Director/Company Secretary and either he/she then gained personally from it or, even if he/she did not gain personally from it, HMRC believes the company may become insolvent. If the company pays the failure to notify penalty then HMRC will not ask the Director and/or the Company Secretary to pay it.
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Are there any other factors that HMRC takes into consideration?
The main focus and rationale underpinning the new regime is 'taxpayer behaviour'. This 'behaviour' will determine the range of financial penalties you will face. The categories of behaviour considered by HMRC are: -
- a 'non-deliberate' failure with a 'reasonable excuse';
- a 'non-deliberate' failure;
- a 'deliberate' failure; or
- a 'deliberate and concealed' failure.
If your failure was 'deliberate' or 'deliberate and concealed' HMRC will charge you a penalty. In non-deliberate cases, HMRC may still charge a penalty unless you have a reasonable excuse for the failure. If your reasonable excuse for the failure has ended and you did not put things right without unreasonable delay after the excuse ends, HMRC will not accept that you still have a reasonable excuse. HMRC considers that a reasonable excuse is an event outside your control although what constitutes a reasonable excuse depends on the facts and circumstances of each case.
Once your behaviour has been categorised, the amount by which any potential penalty might be reduced will depend on: -
- whether your disclosure of your failure is/was prompted;
- whether you make/made an unprompted disclosure to HMRC (one where you have/had no reason to believe that HMRC has/had discovered (or is about to discover) your failure); and
- the quality of the disclosure, which can be enhanced by you telling and helping HMRC and then responding positively to requests for access to records.
Penalty percentages are applied to the Potential Lost Revenue ('PLR') – i.e. the additional tax payable. All other allowable deductions and reliefs (except Group Relief) can be taken into account when calculating PLR.
The maximum and minimum penalties that can be applied to the PLR where you have failed to notify, for each type of behaviour, are:
- if the failure was non-deliberate – a maximum of 30% (potentially reduced to a minimum of 0% for an unprompted disclosure within 12 months of tax being due - otherwise a minimum of 10%) and 10% for a prompted disclosure within 12 months of tax being due otherwise a minimum of 20%;
- if the failure was deliberate – a maximum of 70% (potentially reduced to a minimum of 20% for an unprompted disclosure and 35% for a prompted disclosure); and
- if the failure was deliberate and you concealed it – a maximum of 100% (potentially reduced to a minimum of 30% for an unprompted disclosure and 50% for a prompted disclosure).
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Can failure to notify penalties be suspended?
No.
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Will there be common agreement on behaviours and the nature of a disclosure?
Under the previous penalty regime, taxpayers and their professional advisors frequently disagreed with HMRC over whether a taxpayer had been 'negligent' in failing to notify. These disputes are now likely to be replaced by debates over the appropriate behaviour category and whether the disclosure is/was full and unprompted or prompted. These arguments can significantly affect the potential financial penalties that will/can be charged. Specialist advice to help mitigate potential penalties can be invaluable. Additionally, if you are able to secure the minimum penalty for all the behaviour categories then you will not have your details published on HMRC's website ('Naming & Shaming' Deliberate Tax Defaulters) as a deliberate tax defaulter.
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What should I do if I have failed to notify?
If you have failed to notify your chargeability to tax/VAT, you need specialist advice as soon as possible. It is vitally important to fully and robustly present your arguments to demonstrate that you either have a reasonable excuse for the failure or that the failure was not deliberate. This will help best mitigate any financial penalties. If the failure arose as a result of something you did deliberately, then the best way to mitigate any financial penalty is to make an early, full (and preferably unprompted) disclosure to HMRC.
To properly present a reasonable excuse argument, you will need to present facts and evidence to demonstrate that although a failure did occur you put things right as soon as your reasonable excuse had ended. Genuine mistakes do happen!
If the failure was non-deliberate, you will need to demonstrate this and refute any suggestion by HMRC that you acted deliberately or deliberately with concealment.
If the failure arose because you deliberately didn't tell HMRC or, worse still, that you deliberately failed to notify and then tried to conceal it, all is not lost. You need to consider making a full (and, if possible, unprompted) disclosure to HMRC as soon as possible. This will not only help mitigate any potential penalty, but also avoid your details potentially being published as a deliberate tax defaulter on HMRC's website ('Naming & Shaming' Deliberate Tax Defaulters).
If you discover a failure to notify and are not already subject to a HMRC Compliance Check then you may qualify to make a disclosure via one of HMRC's Campaigns, which typically have guaranteed beneficial penalty arrangements. Expert advice in this area is essential.
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How can OneE TDI help?
If you are contacted or challenged by HMRC, the best thing you can do is the 'right thing; the worst thing you can do is nothing. OneE TDI will help you make the right decisions.
At the core of OneE TDI is a highly experienced team specialising in all areas of tax disputes and investigations work. We offer confidential, non-judgemental advice to best defend our clients and have a proven track record in successfully managing all contentious tax matters. We provide a comprehensive service to accountancy and legal practitioners and their clients. Our advice saves our clients time and money and helps reduce their potential exposure to tax, interest and penalties.
Putting it simply, we take control and manage all issues relating to HMRC Compliance Checks so that our clients can get on with your life. What price peace of mind?
Please see the Testimonials kindly provided by our clients (or their accountants or lawyers), which confirm our levels of client service.
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How can I contact OneE TDI?
If you would like a free, no obligation discussion with us please contact either Gary Rowson or Mark Taylor on 0800 652 6156 or complete and submit the online form below:
Whilst we endeavour to provide informative and accurate information, the content on this site is for general information purposes only and should not be taken to constitute tax or legal advice which must always be tailored to individual circumstances. Please contact us if you would like to discuss matters.
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HMRC Compliance Checks