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HMRC internal manual

Enquiry Manual

Contract Settlements: Penalties: Abatement - Failure to Notify Chargeability

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 where the failure to notify occurs on or after 1 April 2010. Refer to the guidance at CH70000+ for details of the penalty that applies to those failures.

In cases where there has been a failure to notify chargeability, you will normally give the maximum abatement of 10 or 20 percent for disclosure and under exceptional circumstances an extra 10 percent, see EM6071.

For example, to qualify for the maximum abatement a person who failed to notify his chargeability need only admit that

  • they had been in business or in receipt of income from a particular date, and
  • they did not advise HMRC that they were liable.

Provided the information they give is accurate (including for example, the date of commencement) they may, unless there are unusual features, qualify for the maximum abatement for 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 abatement. 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, see EM6070.

The abatement for co-operation EM6075 will depend on the facts of each case. It is not uncommon for the maximum abatement to be given.

The abatement for seriousness EM6080 is less straightforward. You should take into account the length of the delay after the statutory date for notifying the chargeability. Short delays would qualify for a higher abatement.

Bear in mind that separate abatement calculations should be made for other offences such as incorrect returns which are included in the same offer EM6062. If the other penalty is for an inaccuracy in a return or other document

  • with a filing date on or after 1 April 2009 and which
  • relates to a tax period beginning on or after 1 April 2008

you must refer to CH82000+ for guidance on how to work out that penalty.


FA98/Sch18/Para 2