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HM Revenue and Customs Brief 30/10

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HM Revenue and Customs -Tax Authorities

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Issued 18 June 2010

New penalty for failure to notify

Introduction

This Business Brief explains the failure to notify penalty contained in Sch 41 of the 2008 Finance Act (FA2008) which from 1 April 2010 can be applied to most taxes. There is full guidance on this penalty at CH70000 and CH500000 in the Compliance Handbook.

From 1 April 2010 the penalty could be applied to a failure to notify for:
Aggregates Levy Climate Change Levy Insurance Premium Tax
Air Passenger Duty Corporation Tax Landfill Tax
Alcoholic Liquor Duty Excise Duties Lottery Duty
Amusement Machine Gaming Duty Pool Betting Duty
Licence Duty General Betting Duty Remote Gaming Duty
Bingo Duty Hydrocarbon Oils Duty Tobacco Products Duty
Capital Gains Tax Income Tax VAT

Background

Under the review of HMRC's powers, deterrents and safeguards legislation has been introduced to align and modernise the framework under which we administer the taxes and duties formerly handled by Customs and Excise and the Inland Revenue.

We inherited a number of different penalty regimes from Customs and Excise and the Inland Revenue. The law and practice relating to penalties varied not only between the two former departments but also between the various taxes and duties for which each department was responsible.

Finance Act 2007 (section 97 (Opens new window) and Schedule 24 (Opens new window)) introduced a simpler and more consistent penalty system for inaccuracies in tax returns and other documents.

Finance Act 2008 (section 123 (Opens new window) and Schedule 41 (Opens new window)) has extended and adapted the new penalty framework to introduce:

  • A standard penalty across most our taxes where a customer fails to register or notify us and as a result tax is due. Paragraph 1 of Schedule 41.
  • Various VAT and Excise wrongdoing penalties. Paragraphs 2, 3 and 4 of Schedule 41 – see Revenue and Customs Brief 52/09.

Failure to notify

Failure to notify occurs when someone fails to tell us on time that an event has happened that:

  • gives rise to additional liability
  • gives rise to chargeability
  • means they need to register with us

These events could include:

  • where a person has Income Tax, Capital Gains Tax or Corporation Tax to pay and we have not given them a notice to make a return
  • when a person starts a new taxable activity
  • when the turnover from an existing activity has reached a certain level
  • when the nature of the activity changes

We will not charge a penalty if the person has a reasonable excuse for not telling us at the appropriate time, provided that they tell us without unreasonable delay after the excuse had ended.

Dates and times

The new failure to notify penalty regime applies to failures occurring on or after 1 April 2010. When you must notify us by depends on the type of tax and the declaration method involved. Examples are given in Appendix 1 at the end of this Brief of the most common taxes a self-employed person or small business is likely to encounter.

Size of penalty

The amount of the penalty is a percentage of the tax that is unpaid at a specified date, or
to which the person is liable for the relevant period. This tax is known as the 'potential lost revenue'.

The percentage is determined by the behaviour that led to the failure to notify and the behaviour after the failure has been established. Higher penalties are charged if the failure was deliberate, but the percentage can be reduced from the maximum for disclosure and the amount of help the person gives us in establishing the amount of tax unpaid.

Behaviour that led to the failure

The new penalty is designed to address the behaviour that caused the failure so that, within the deliberate category, the law provides for higher penalties in the most serious cases where the person has failed to notify us and has taken steps to conceal the need to notify.

The definition of the behaviour that led to the failure to notify will be:

  Maximum % Prompted Minimum % Unprompted Minimum %
Non-deliberate 30 20 10
Deliberate but not concealed 70 35 20
Deliberate and concealed 100 50 30

A disclosure is unprompted if at the time it is made the person had no reason to believe that we had discovered or were about to discover the failure. Otherwise it is a prompted disclosure.

We want to encourage people to join the tax system. If the failure is notified within 12 months of the tax becoming unpaid, the penalty for a non-deliberate failure to notify may be reduced for:

  • a prompted disclosure from 20 per cent to 10 per cent
  • an unprompted disclosure from 10 per cent to 0 per cent

Behaviour after the failure has been established

The maximum penalty percentage is reduced by an amount that represents the quality of disclosure. The term ‘reduction for disclosure’ replaces the terms ‘abatement’ and ‘mitigation’ used in previous penalty regimes. The first thing to consider about the quality of the disclosure is whether the disclosure was prompted or unprompted.

To calculate the reduction for disclosure you need to consider another three elements of disclosure:

  • telling us about it – which involves admitting the failure, making a full disclosure and explaining how and why the failure occurred
  • giving us help – which involves giving active assistance and actively engaging in quantifying the amount, as opposed to passive acceptance or obstruction
  • volunteering any information relevant to the disclosure, such as allowing us access to records

Appealing against a failure to notify penalty

When we have decided on the penalty we will issue a penalty assessment. The person is entitled to a review of, and can appeal against, our decision:

  • that a penalty is payable
  • the amount of the penalty

More information

Compliance Handbook
New penalties internet page
Q and A briefing on all penalty changes

Appendix 1

Examples of late notification

Below are some examples of when a failure to notify penalty may apply for the most common taxes.

Income that needs to be declared on a Self Assessment Return
Someone who has not received a self assessment return or notice to file must tell us if they had income or capital gains that made them chargeable to tax in the previous tax year.

The deadline for notifying us is 5 October, after the end of the tax year. Where you file the tax return and pay the tax by the relevant deadlines there is no failure to notify penalty.

Find out whether you need to complete a tax return.

VAT
A business that has exceeded the VAT registration threshold over the past 12 months, or expects to turnover the whole VAT threshold in the next 30 days, must tell us within 30 days.

Find out how and when to register for VAT.

Corporation Tax
A company who has not received a Company Tax return or notice to file must tell us if they become chargeable to tax within 12 months from the end of the accounting period.

Different companies can have different accounting dates, so the time limit for notifying us will differ accordingly. If a company's accounting date is 30 June 2009 and it is liable to Corporation Tax for that period, notification of chargeability must be given to us by 29 June 2010.

Detailed information on getting started with Corporation Tax.

Self-employment and National Insurance contributions
There is a similar penalty for Class 2 National Insurance that we will apply if you do not tell us that you have to pay Class 2 National Insurance contributions because you have become self-employed.

If you start self-employment between 6 April 2009 and 5 April 2010 you must tell us by 31 January 2011.

Read more about self-employed and National Insurance.


About the Author

© Crown Copyright 2010.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.



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Article Published/Sorted/Amended on Scopulus 2010-07-01 17:28:02 in Tax Articles

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