CH73260 - Penalties for Failure to Notify: Calculating the penalty: Penalty reductions for quality of disclosure: Determining the quality of disclosure - Examples

Example 1

Julius sold some shares and made a capital gain in the tax year 2011-12. He did not receive a return for the year. He should have told us about the gain by 5 October 2012 and the tax should have been paid by 31 January 2013.

You received information about the disposal from another source and challenged Julius. He originally denied that the sale had taken place. When he did tell you about it, he gave full details although there was some delay in providing the relevant documents to enable you to check the amount of tax unpaid because of the failure to notify.

The quality of the disclosure is decided as

Telling	15%	(of the full 30% see CH73300)
Helping	30%	(of the full 40% see CH73320)
Giving access	25%	(of the full 30% see CH73340)
Total	70%	(of the full 100%)

So the quality of disclosure reduction is 70%.

Example 2

Victoria opened a shop selling maternity and baby wear in May 2011. The shop was a great success. So much so that she got behind with her paperwork and did not tell us that she had started in business by 5 October 2012. When she saw her accountant in January 2013 she realised she had forgotten to tell us about her business. She immediately contacted us, completed returns fully and sent them to us promptly. We accepted her returns without enquiry.

The quality of disclosure is decided as

Telling	30%	(of the full 30% see CH73300)
Helping	40%	(of the full 40% see CH73320)
Giving access	30%	(of the full 30% see CH73340)
Total	100%	(of the full 100%)

So the quality of disclosure reduction is 100%. Victoria is given the full reduction for each element where she was not required to do anything.

Example 3

Vas’s business makes and sells packets of their famous Crispy Crunchy Cakes. The business is not registered for VAT. Vas claims that this product is VAT exempt and because of his certainty he rebuffs our requests for information on the grounds of time and cost.

We make estimated tax and penalty assessments and Vas appeals. At this point Vas appoints an agent, who starts to correspond with us. Vas still robustly maintains his opinion and the tax position is eventually decided in HMRC’s favour by the tribunal.

We discuss the penalty and agree the following views on quality of disclosure:

Telling - We should not penalise the person for maintaining a tenable position and not admitting the failure. There is little more Vas could have told us in what was clearly a black or white case.

Helping - Here Vas was somewhat unhelpful particularly before the agent was appointed and we have a less positive view about the helping reductions.

Giving Access - Vas’s unwillingness to co-operate comes in to play but as this was an issue of principle we did not need access to many records.

The quality of disclosure is decided as

Telling	30%	(of the full 30% see CH73300)
Helping	20%	(of the full 40% see CH73320)
Giving access	20%	(of the full 30% see CH73340)
Total	70%	(of the full 100%)

So the quality of disclosure reduction is 70%.

Example 4

Dave invested in a portfolio of offshore investments in 2006-07 which started earning him income the following year. Dave had not received a self-assessment return for 2007-08 and decided not to tell HMRC about the income he had received. Dave should have told HMRC about the income by 5th October 2008 and the tax should have been paid by 31st January 2009.

In 2016, after hearing that HMRC would be receiving data on overseas investments under Automatic exchange of information agreements, Dave made a full disclosure about his failure to notify chargeability to HMRC. As he had waited more than 3 years to come forward and correct the issue, despite having access to targeted disclosure facilities, HMRC would not expect to provide the full reduction for the quality of disclosure, instead limiting the reductions to the penalty to 10 percentage points above the minimum for the statutory behavioural range (see CH73200 and CH73210 for the relevant ranges). If Dave did not cooperate fully after the disclosure was submitted even higher penalties may be due.

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 CH73360 for further guidance.