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HMRC internal manual

Enquiry Manual

Penalties: Failure to Notify Chargeability: All Years

Form of Notification

Although not a statutory requirement, the notification should be in writing.

When Offence Committed

The offence is committed on the day following the expiry of the 6 month period for income tax years 1995/6 onwards or 12 months on other cases.

Common Failure Situations

The most common situations in which liability to penalties is incurred are where

  • a person commences trading without telling us
  • a trust is created and the trustees do not tell us
  • a chargeable gain arises in a year for which no return is issued (typically in a PAYE case)
  • chargeability to CGT is not notified by the trustees in a case where the income has been returned personally by, for example, a life tenant.

Where returns are received in a case where penalties have been incurred, these should be examined critically and subjected to risk assessment. You should be alert to the possibility that the failure might have been just the first stage of evasion and it might well be a pointer to that taxpayer’s attitude generally towards compliance.

No liability Cases

Whatever the strict legal position, it has not been our practice, for any year, or accounting period to claim a penalty where there is no net liability to tax or NIC. The most common example is the uncertificated subcontractor whose liability is wholly covered by the deductions made during the course of the year.

However, a tax-geared penalty should be sought for any year of assessment or accounting period where there has been failure to notify chargeability and additional liability arises for that year or periods even though for other `failure’ years or periods there is no liability or there are repayments due to the taxpayer.