CH63320 - Penalties for Failure to File on Time: Calculating the penalty: Penalty reductions for disclosure: Determining the quality of disclosure - Examples

Example 1

Jessica operates a small business. She writes to us more than 12 months after the filing date for the 2012/13 tax year to inform us that she had disposed of an investment property in that year.

We have to make a number of requests for information from Jessica. We eventually get sufficient details to calculate the gain and to establish that she hoped that by failing to submit the return the gain would not be taxed.

We decide that the quality of the disclosure is as follows.

Telling - upon disclosing Jessica did give us all the information we needed to know that there was a gain although she was less forthcoming about why the information was withheld.	25%	(out of the full 30% see CH63260)
Helping - the assistance given by Jessica is at best passive.	25%	(out of the full 40% see CH63280)
Giving access - Jessica did give access to documents and records but took a little persuading to do so.	20%	(out of the full 30% see CH63300)
Total reduction	70%	(out of the full 100%)

The quality of disclosure reduction is 70%. See CH63660 for how this percentage is used when calculating the 12 month further penalty.

Example 2

If, in the above scenario, Jessica had told us everything promptly and offered all of the business and other records immediately then the quality of disclosure would have been higher, possibly even the maximum available, as follows.

Telling	30%	(out of the full 30% see CH63260)
Helping	40%	(out of the full 30% see CH63260)
Giving access	30%	(out of the full 30% see CH63300)
Total reduction	100%	(out of the full 100%)

The quality of disclosure reduction is 100%. See CH63660 for how this percentage is used when calculating the 12 month further penalty.

Remember, the full reduction is given for each element where we did not require the person to do anything.

Example 3

If, in the above scenarios, more than 3 years had passed since Jessica was required to make a return regarding the investment property, or Jessica had had access to an offshore disclosure facility which would have allowed her to correct the failure to make the return, then HMRC would not expect to reduce the penalty any further than 10 percentage points above the minimum penalty for the relevant behavioural range (see CH63200 and CH112700 for the relevant ranges).

NOTE - 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 reduction for the quality of disclosure. A ‘significant period‘ is normally considered to be over 3 years but may be less where the overall disclosure covers a longer period.

If you consider that this may apply to your case, see CH63310 for further guidance.