Guidance

Penalties for not telling us about an under-assessment — CC/FS7b

Updated 25 February 2022

This factsheet tells you about penalties we may charge if there has been an under-assessment and you have not told us about it within 30 days. This factsheet is one of a series. For the full list, see ‘HMRC compliance checks factsheets’.

If you need help

If you have any health or personal circumstances that may make it difficult for you to deal with us, please tell the officer that’s contacted you. We’ll help you in whatever way we can. For more details, go to ‘get help from HMRC if you need extra support’.

You can also ask someone else to deal with us on your behalf, for example, a professional adviser, friend or relative. We may however still need to talk or write to you directly about some things. If we need to write to you, we’ll send a copy to the person you’ve asked us to deal with. If we need to talk to you, they can be with you when we do, if you prefer.

What is an under-assessment

If you do not send us a completed tax return, we may send you an assessment showing the tax we believe is due. If the amount of tax we’ve assessed is less than the amount that should have been shown on your return, our assessment is an ‘under-assessment’ because it is too low.

When we may charge you a penalty for an under-assessment

We may charge you a penalty for an under-assessment if:

• we sent you an assessment that was too low
• you did not tell us that it was too low within 30 days of the date of the assessment

If you ask someone else, such as an employee or adviser, to do something on your behalf, you must do as much as you can to make sure they tell us about any under-assessment within 30 days. If you do not do this, we may charge you a penalty.

When we will not charge you a penalty for an under-assessment

We will not charge you a penalty for an under-assessment if you took reasonable steps to inform us that the assessment was too low within 30 days of the date of the assessment. Some of the ways you can show us that you took reasonable steps include:

• sending us the completed return
• contacting us to tell us that the assessment is too low
• consulting a tax adviser so that they can let us know that the assessment is too low

What ‘reasonable steps’ are depends on each person’s individual circumstances.

If there was anything about your health or personal circumstances that made it difficult for you to inform us about an under-assessment, please tell the officer that’s carrying out the check. Telling them will mean that they can take this into account when considering penalties.

Disclosing an under-assessment before we find it

If you tell us about an under-assessment before you have any reason to believe that we’ve discovered, or about to discover the under-assessment, we call this an ‘unprompted disclosure’. If you tell us about an under-assessment at any other time, we call it a ‘prompted disclosure’.

The minimum penalty for an unprompted disclosure is lower than the minimum penalty for a prompted one.

What you can do to reduce any penalty we may charge

We can reduce the amount of any penalty we charge you depending on our view of how much assistance you gave us when you make a disclosure. We refer to this assistance as the ‘quality of disclosure’ or as ‘telling, helping and giving’.

Examples of making a disclosure include:

• telling us about, or agreeing with us that there is an under-assessment
• telling us everything you can about the extent of the under-assessment as soon as you can
• helping us by using your own records to work out the amount under-assessed
• helping us to understand your figures or records
• giving us your return or other documents that help us to work out the amount under-assessed

Telling, helping and giving could be covered just by giving us your return showing the correct figures.

We’ll reduce the penalty by the maximum amount possible if you:

• tell us everything you can about an under-assessment as soon as you know about it or you believe we’re about to find it
• do everything you can to help us correct it

If you delay in making a disclosure, you may still be entitled to a reduction, but it will be smaller.

If we do not need any extra assistance from you, we’ll give you some reduction for telling, helping and giving.

Letting us know about any special circumstances

If there are any special circumstances that you believe the officer dealing with the check should consider when working out the penalty, you should let them know straightaway.

How we work out the amount of a penalty

There are 6 stages in working out the amount of any penalty. Each stage is explained in more detail below.

1 Working out the amount of the ‘potential lost revenue (PLR)’

The penalty is a percentage of the PLR.

PLR is the difference between the tax assessed and the correct amount of tax.

2 Deciding whether the disclosure was unprompted or prompted

This determines the minimum penalty percentage that we can charge. For an under-assessment, the maximum penalty percentage is 30%.

For an unprompted disclosure, the minimum penalty percentage is 0%. For a prompted disclosure, the minimum penalty percentage is 15%. This gives a penalty range shown in the table below.

Unprompted disclosure	Prompted disclosure
0% to 30%	15% to 30%

What we mean by unprompted and prompted, is explained in more detail in the section of this factsheet titled ‘Disclosing an under-assessment before we find it’.

3 Working out the reductions for the quality of disclosure (also referred to as ‘telling, helping and giving’)

When we work out the quality of disclosure, we’ll also consider how long it’s taken you to disclose the under-assessment. If it’s taken you a long time (such as 3 years or more) to make a disclosure, we’ll usually restrict the maximum reduction we give for the quality of disclosure to 10 percentage points above the minimum of the penalty range. This means you will not benefit from the lowest penalty percentage that’s normally available.

The reduction we give depends on how much assistance you give us. For:

• telling we give up to 30%
• helping we give up to 40%
• giving access to records we give up to 30%

4 Working out the penalty percentage rate

The penalty percentage rate is determined by the penalty range and the reduction for the quality of disclosure.

Example

We sent a person a VAT assessment because they had not filed their VAT return on time. Three months later we started a compliance check to establish whether our assessment was correct. They did not send us the information we had asked for until we used our information powers to get their business records. They then made a disclosure of an under-assessment by sending us their VAT return. This was a prompted disclosure.

The penalty range for a prompted disclosure is 15% to 30%.

The reduction for quality of disclosure (telling, helping and giving) was 70%.

Steps	Calculation example
To work out the penalty percentage rate, we first work out the difference between the minimum and maximum penalty percentages.	30% minus 15% = 15
We then multiply that figure by the reduction for quality of disclosure to arrive at the percentage reduction.	15 x 70% = 10.5%
We then take off the percentage reduction from the maximum penalty percentage we can charge.	30% minus 10.5% = 19.5%
This gives us the penalty percentage rate.	19.5%

5 Working out the amount of the penalty

To work out the amount of the penalty, we multiply the PLR by the penalty percentage rate. In the example above, the PLR is £3,000. This means the penalty is £585 (£3,000 x 19.5% = £585).

6 Considering other reductions

After working out the amount of the penalty, we then take into account any other reductions that are necessary. This will then give the amount of penalty that we’ll charge.

How we tell you about a penalty

We’ll write to you to tell you how much the penalty is and how we’ve worked it out. If there’s anything about the penalty that you do not agree with, or if you think there is any information we have not already taken into account, you should tell us straightaway.

After taking account of anything you’ve told us, we’ll either:

• send you a penalty assessment notice
• invite you to enter into a contract with us to pay the penalty, together with the tax and interest

In certain circumstances, you may also have to pay interest on the penalty if you do not pay it on time.

If you disagree

If there’s something that you do not agree with, please tell us.

If we make a decision that you can appeal against, we’ll write to you to explain the decision and tell you what to do if you disagree. You’ll usually have 3 options. Within 30 days you can:

• send new information to the officer dealing with the check and ask them to take it into account
• have your case reviewed by an HMRC officer who has not been involved in the matter
• arrange for an independent tribunal to hear your appeal and decide the matter

Whichever you choose, you may also be able to ask for an HMRC specialist officer to act as a neutral facilitator to help resolve the dispute. We call this ‘Alternative Dispute Resolution’ (ADR).

ADR is only available for disputes that relate to particular tax areas. The officer dealing with the check will tell you if ADR is available for your dispute. For more information about appeals and ADR, read factsheets:

• HMRC1 ‘HM Revenue and Customs decisions — what to do if you disagree’
• CC/FS21 ‘Alternative Dispute Resolution’

Your rights if we’re considering penalties

The European Convention on Human Rights gives you certain important rights. If we’re considering penalties, we’ll tell you. We’ll also tell you that these rights apply and ask you to confirm that you understand them. These rights are that:

• if we ask you any questions to help us decide whether to charge you a penalty, you have the right not to answer them
• the amount of help that you give us when we’re considering penalties is entirely a matter for you to decide
• when deciding whether to answer our questions, you may want to get advice from a professional adviser — particularly if you do not already have one
• if you disagree with us about any penalties we believe are due, you can appeal
• you have the right to apply for funded legal assistance for dealing with any appeal against certain penalties
• you’re entitled to have the matter of penalties dealt with without unreasonable delay

You can find full details about these rights in factsheet CC/FS9 ‘The Human Rights Act and penalties’.

What happens if you give us information you know to be untrue

We may carry out a criminal investigation and you may be prosecuted if you:

• give us information you know to be untrue, whether verbally or in a document
• dishonestly declare the wrong amount of duty or claim payments to which you are not entitled

More information

Our privacy notice

Our privacy notice sets out the standards that you can expect from us when we ask for information or hold information about you.

If you are not happy with our service

Please tell the person or office you’ve been dealing with. They’ll try to put things right. If you are still not happy, they’ll tell you how to make a formal complaint.