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HMRC internal manual

Enquiry Manual

Contract Settlements: Penalties: Abatement - Disclosure

The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.

This guidance does not apply to penalties for inaccuracies in returns or other documents with a filing date on or after 1 April 2009 where the return or document relates to a tax period beginning on or after 1 April 2008. Refer to the Compliance Handbook at CH82000+ for help with these penalties.

‘Disclosure’ EM6065 means

  • a disclosure of irregularities, or
  • an admission that the returns or accounts have been wrong

whether or not the taxpayer is able to quantify the irregularities at the time the disclosure is made.

A complete disclosure will in some cases need to include a description of the manner in which the irregularities have been effected. Disclosure implies

  • positive
  • voluntary, and
  • useful contributions

to your knowledge of the irregularities.

A statement which may constitute a disclosure at an early stage in the enquiry (for example, assisting with the quantification of the irregularities or the establishment of culpability) may, if made at a late stage in the enquiry be no more than confirmation of what you have irrefutably established.

‘Disclosure’ does not, in this context, mean a disclosure of assets in the course of calculating the omissions. Disclosure or non-disclosure of assets and the production of information and documents in response to your enquiries should be regarded as elements in arriving at the abatement for co-operation EM6075.

Circumstances will range from the extremes of

  • a complete and voluntary disclosure, made spontaneously by a taxpayer who has not been challenged and who has no reason to fear early discovery (when an extra 10 percent may under exceptional circumstances be given, see EM6071) to
  • no admission of irregularities even though the tribunal has determined appeals against discovery assessments and enquiry amendments in HMRC’s favour (when no abatement for disclosure should be given).

Between these extremes there will be a variety of circumstances calling for differing degrees of abatements, including the following.

  • A voluntary and complete disclosure by a taxpayer who has some reason to suspect early discovery. A disclosure made in response to an enquiry notice would fall into this category.
  • Full disclosure on challenge.
  • A voluntary disclosure which turns out to be partial.
  • Partial disclosure on challenge.
  • Denial of irregularities on challenge, but disclosures subsequently made.

The list is not comprehensive and you should take into account any other relevant circumstances.

If there are no other relevant factors, it may be appropriate to allow 20 percent for a case within the first two categories, and 5 percent if the disclosure is very belated under the final category.

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 abatement for disclosure. A ‘significant period‘ is normally considered to be over 3 years but may be less where the overall disclosure covers a longer period.

Where such a delay has occurred you should reduce the abatement for disclosure by 10 percentage points.