How to Work out a Penalty for Failing to Notify

Finance Act 2008 lays down maximum and minimum penalties for failure to notify. The only reduction of the maximum penalty percentage permitted is a reduction for disclosure. A disclosure can be prompted unprompted.

An unprompted disclosure earns a greater reduction in the penalty than a prompted disclosure.

The penalty cannot be reduced below the statutory minimum unless HMRC agrees to make a special reduction. The statutory minimum depends on the behaviour leading to the failure and:-

  • Whether the failure was prompted or unprompted: and
  • For non-deliberate failures, when the disclosure was made.

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Calculating the Penalty

The stages for calculating the amount of the penalty are as follows:-

  • Identify the behaviour leading to the failure and whether the disclosure was prompted or unprompted;
  • Identify the maximum (a) and minimum (b) penalty;
  • Deduct the minimum penalty from the maximum penalty to work out the maximum permitted reduction for disclosure (c): c = a – b;
  • Work out the percentage reduction for the quality of the disclosure (d);
  • Apply the percentage reduction for the quality of the disclosure to the maximum permitted reduction for disclosure to work out the actual reduction percentage for disclosure (e): e = d x c;
  • Deduct the actual reduction percentage from the maximum penalty percentage to work out the penalty percentage (f): f = a – e;
  • Apply the penalty percentage to the potential lost revenue (PLR) to work out the amount of the penalty: amount of the penalty = PLR x f.

Example 1

A person failed to notify on time and did so more than 12 months late. The failure was deliberate but without concealment and the PLR is £5,000.

The disclosure was unprompted and the quality of the disclosure justifies a reduction for disclosure of 80%.

  • The failure was deliberate but without concealment and the disclosure was unprompted but more than 12 months late.
  • The maximum penalty is 70% and the minimum 20%.
  • The maximum permitted deduction for disclosure is 50% (70% – 20%).
  • The reduction for the quality of the disclosure is 80%.
  • The actual reduction percentage for disclosure is 40% (50% x 80%).
  • The penalty percentage is 30% (70% – 40%).
  • The penalty is £1,500 (PLR £5,000 x 30%).

Example 2

A person failed to notify on time but did so less than 12 months late. The failure was non-deliberate and the PLR is £5,000.

The disclosure was unprompted and the quality of the disclosure justifies a reduction for disclosure of 100%.

  • The failure was deliberate but without concealment and the disclosure was unprompted and made less than 12 months late.
  • The maximum penalty is 30% and the minimum 0%.
  • The maximum permitted deduction for disclosure is 30% (30% -0%).
  • The reduction for the quality of the disclosure is 100%.
  • The actual reduction percentage for disclosure is 30% (30% x 100%).
  • The penalty percentage is 0% (30% – 30%).
  • The penalty is nil (PLR £5,000 x 0%).


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Prompted or Unprompted

A disclosure is:-

  • Unprompted if is made when the person making it has no reason to believe that HMRC have discovered, or are about to discover, the relevant act or failure;
  • Otherwise it is prompted.

HMRC have indicated that a disclosure will be treated as a prompted disclosure if it is made by a person after:-

  • They became aware that HMRC had obtained information concerning the obligation to notify;
  • HMRC had contacted them regarding the particular tax or activity to which the obligation to notify relates; or
  • During the course of a compliance check concerning one tax liability, it becomes apparent that they have failed to notify liability to another tax or duty.

A disclosure made after an HMRC national campaign to highlight a particular type of potential non-compliance can still be treated as an unprompted disclosure.

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Reduction for Disclosure

A disclosure has three elements; telling, helping and allowing access. For making the reduction for disclosure, HMRC weights the three elements as follows:-

  • Telling – 30%
  • Helping – 40%
  • Allowing access – 30%

The reduction for disclosure reflects the ‘quality’ of each of these three elements. For these purposes, para. 12 (4) defines quality to include:-

  • Timing;
  • Nature; and
  • Extent.

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