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HMRC internal manual

Compliance Handbook

Penalties for Inaccuracies: Calculating the Penalty: Penalty reductions for quality of disclosure: Examples of unprompted or prompted disclosure

You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.

Example 1

Jemima returned a capital gain which is the subject of a compliance check. There is no intention to expand the scope of the compliance check during the review. She discloses that she has not declared her car benefit. This is an unprompted disclosure.

Example 2

During a VAT assurance visit considering the credibility of Alphonse’s sales records, he discloses that his sales have also been understated for income tax. This would be related to the subject under review and so is a prompted disclosure.

Example 3

During an Employer Compliance review the employer makes a disclosure that the basis of the transfer pricing calculation for Corporation Tax is wrong. This is unrelated to the subject under review and so there is an unprompted disclosure.

Example 4

During an enquiry into an inheritance tax account, we referred the value of the deceased’s house to the Valuation Office Agency and tell the personal representatives that we have done so. The personal representatives subsequently correct the value upwards saying that they sold the property for the higher value shortly before submitting the account. This is a prompted disclosure.

Example 5

During an audit of a winery, the manager discloses to the officer that the duty declared on the previous return was actually incorrect. He admits that this had been incorrectly calculated on the strength of wine at 13% abv instead of 16% abv. The manager had made no previous attempt to inform HMRC about this inaccuracy before the stock records were checked. This is a prompted disclosure.

Example 6

On 17 May 2010 a central assessment is raised because Banner Ltd’s VAT return for the quarter end 31 March 2010 has not been received. On 1 August 2010 a compliance check is arranged with the company and a visit takes place on 15 August. During the visit the directors produce the completed VAT return for the period to 31 March 2010 showing a liability in excess of the central assessment. The assessment based on the completed return replaced the assessment raised on 17 May 2010. The production of the return is a prompted disclosure of an under-assessment.

Note that if a disclosure of an under-assessment is made within 30 days of the date the assessment is issued there will be no penalty in respect of the under-assessment, see CH81170.

Example 7

Darren, a Trustee of a Settlement, included a capital gain in the SA Trust return. The gain is the subject of a compliance check. During the check, Darren discloses that he has used the wrong acquisition value as there was a held-over gain on the transfer of the asset to the Settlement. This is related to the subject under review and so is a prompted disclosure.

Example 8

David holds funds received from consultancy income earned abroad in a bank account in a CRS (Common Reporting Standard) reporting country. The overseas bank wrote to David to tell him that details of his account were being exchanged under CRS.  His disclosure includes the undeclared income, interest received and income from other offshore structures.  Details of these offshore bank accounts have been given to HMRC under CRS and there has been significant activity promoting this exchange.  HMRC expect most people who are affected will be well aware of these changes and David was explicitly told by his bank that they were reporting his account under CRS.  We will treat this as a prompted disclosure as David knew the information had been supplied to HMRC and he therefore had reason to believe HMRC were about to find out about the undeclared income.

Example 9

Sarah had a bank account in a CRS reporting country and has not declared the interest she receives in that account.  The account was closed in 2015 and because of this HMRC will not receive information about it under the Common Reporting Standard (CRS).  Sarah becomes aware of the CRS and although her account will not be reported she decides to make a disclosure to HMRC.   Because Sarah made her disclosure at a time when she had no reason to believe her undisclosed income was about to be discovered her disclosure will be treated as unprompted.