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HMRC internal manual

Compliance Handbook

Penalties for failure to notify: overview

The law requires a person to tell HMRC when certain events happen. These events include

  • where a person has income tax, capital gains tax or corporation tax to pay but has not been given notice to make a return for the period
  • where we have withdrawn a notice to file but the person finds that they have income tax, capital gains tax or corporation tax to pay for the period
  • when a person starts a new taxable activity
  • when the turnover from an existing activity has reached a certain level, or
  • when the nature of the activity changes
  • when a person intends to start a taxable activity that must be registered with HMRC before the activity commences, or
  • when a person able to register intends to allow the start of a taxable activity and they must be registered before allowing that activity to commence.

The nature and timing of each notification depends upon the tax and the nature of the activity and more than one may be needed. For example, a company which has been set up to brew beer may have to tell us separately that it has done so for the purposes of VAT and Alcoholic Liquor Duty and that it has corporation tax to pay.

Most people tell us about their new businesses or that they have tax to pay. Those who do not, or those who tell us late, may have to pay a financial penalty unless they have a reasonable excuse for not telling us on time.

Where the obligation to give us a notification arises on or after 1 April 2010, the penalty regime in FA08/SCH41 will apply across most taxes and duties.

The amount of the penalty is a percentage of the tax

  • that is unpaid at a specified date, or
  • to which the person is liable for the relevant period.

This tax is known as the ‘potential lost revenue’. The penalty range is determined by the behaviour that led to the failure to notify and whether the disclosure was prompted or unprompted. Higher penalties are payable if the failure was deliberate.

Reductions in the penalty percentage are given for the quality of the person’s disclosure enabling us to establish the amount of tax unpaid because of the failure.

When we have made a decision to charge a penalty, we will issue a penalty assessment. The person can appeal and is entitled to a review of the decision. Where necessary the appeal will be heard by the tribunal.

We can agree to a special reduction of the penalty when there are special circumstances.

The penalty provisions in Sections 100 to 103 of TMA 1970 do not apply to a penalty under Schedule 41 FA 2008.

There are also specific rules covering

  • how the penalty provisions apply in relation to agents and companies
  • what happens if a person incurs a penalty for failure to notify and another penalty on the same tax.