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HMRC internal manual

Compliance Handbook

Penalties for Failure to Notify: Calculating the penalty: Penalty reductions for quality of disclosure: Timing of the disclosure

Where a person has taken a significant period to correct their non-compliance in relation to either an onshore or offshore matter, or they would previously have been able to make a disclosure through one of HMRC’s offshore disclosure facilities, they can no longer expect HMRC to give them the full reduction for the quality of disclosure. A ‘significant period’ is normally considered to be over 3 years but may be less where the overall disclosure covers a longer period.

For any disclosure made after 5 September 2016 you should now take into account the time that has passed between the date when the failure to notify occurred and the date of its disclosure.

For failure to notify cases, this only applies to deliberate or deliberate and concealed behaviour. For non-deliberate behaviour where the failure is corrected within 12 months the penalty range is 0% to 30% for unprompted and 10% to 30% for prompted disclosures relating to onshore matters. Under current legislation, if the disclosure is made after twelve months, then the minimum penalty is increased to 10% for unprompted and 20% for prompted. This adequately reflects the time taken to come forward and therefore no further adjustment is needed for non-deliberate behaviour, even if more than 3 years have elapsed.

For failure to notify penalty rates relating to offshore matters, see CH114600.

When you work out the quality of disclosure, you should firstly consider the timing of the disclosure by taking into account how long it has taken between when the failure to notify occurred and the time the person told us about the failure. If they have taken a significant period (normally 3 years) to correct or disclose the failure, you should normally restrict the amount of reduction given for disclosure.

You do this by restricting the maximum reduction by 10 percentage points to reflect the time that they have taken to begin telling us about the failure, before going on to work out any further reductions for the quality of telling, helping and giving.

What this means, is that you should calculate the penalty in two stages

  1. firstly you consider if the disclosure started more than 3 years after the failure to notify occurred and if so restrict the maximum reduction by 10 percentage points
  2. you must then work out any further reductions for the quality of the telling, helping and giving.

For example, for an unprompted deliberate penalty relating to an onshore matter, the penalty range is 20% to 70%. If, after taking into consideration the initial ‘timing’, you decide that the restriction should apply, then the penalty range will be 30% to 70%. You should then calculate the amount of the penalty reductions under Telling, Helping and Giving as normal but then apply the resulting percentage to the penalty range of 30% to 70%.

When you are processing the penalty, the NPPS system will automatically make this adjustment once you have selected the relevant box to indicate that the restriction applies. You then enter your calculated reductions as normal.

The restriction applies not only in cases where the person must have been aware of the failure to notify but failed to act but also in cases where they had failed to consider their position and identify the failure sooner.  

Although the restriction will normally apply where there has been a significant delay in making a disclosure or correcting a failure, there may be circumstances where you consider it not to be appropriate.

In cases where a person has taken more than 3 years to act and you decide not to restrict the reductions for quality of disclosure, these decisions must be authorised by your manager or an authorising officer and the reason for not applying the restriction should be recorded in the papers.

Cases where the compliance check started within the 3 year period, but the disclosure is made after the 3 year period  

This will depend on the nature of the disclosure, but generally the initial period would be up to the point that the person started to make the disclosure. Where a partial disclosure of a failure to notify is made within 3 years period, the 10% rule would not be applied. In cases involving more than one failure to notify or period of failure, you should consider the rule separately for each failure.

Cases where the disclosure was made during a compliance check

In cases where the original failure occurred over 3 years ago but was only disclosed following the start of a compliance check, this will largely depend on the nature of the failure. If a person failed to notify at the correct time and had no reason to revisit and the cause of the late notification that only came to light during a compliance check, then it is possible that the 3 year restriction would not be appropriate. In other cases, the three years should be measured from when the failure occurred up to when the disclosure is made or the failure is corrected.