HM Revenue and Customs Brief 30/10
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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.
