CH82465 - Penalties for Inaccuracies: Calculating the Penalty: Penalty reductions for quality of disclosure: Timing of the disclosure
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, from the date the inaccuracy or inaccuracies that are being disclosed first occurred.
Timing of the disclosure
For any disclosure made after 5 September 2016 you should now take into account the time that has passed between the date when the inaccuracy first occurred and the date of its disclosure.
A person starts to make a disclosure by either telling, see CH82444, helping, see CH82450 or giving, see CH82460. For example, a person will start to make an unprompted disclosure when they first contact us to tell us about the inaccuracy, or a prompted disclosure when they first contact us after we open a compliance check.
When you work out the quality of disclosure, you should firstly consider timing of the disclosure by taking into account how long it has taken between when the inaccuracy first occurred and the time the person told us about the inaccuracy. If they have taken a significant period (normally 3 years) to start to correct or disclose the inaccuracy, you should normally restrict the amount of reduction given for disclosure.
How to apply the quality of disclosure reduction
You do this by restricting the difference between the minimum and maximum penalty percentages (the “maximum reduction”) by 10 percentage points to reflect the time that they have taken to begin telling us about the inaccuracy. You then go on to work out any further reductions for the quality of telling, helping and giving.
What this means, is that you should calculate the quality of disclosure in two stages
- firstly you consider if the disclosure started more than 3 years after the inaccuracy first occurred and if so restrict the maximum reduction by 10 percentage points
- you must then work out any further reductions for the quality of the telling, helping and giving as normal.
For example, for an unprompted careless penalty relating to an onshore matter, the penalty range is 0% to 30%. If, after taking into consideration the initial ‘timing’, you decide that the restriction should apply, then you should restrict the maximum reduction from 30% to 20%. You should then calculate the amount of the penalty reductions under Telling, Helping and Giving as normal but then apply the resulting percentage to the restricted maximum reduction of 20%. In this example full reductions for telling, helping and giving would result in reductions of 20% and a penalty loading of 10%.
Processing the penalty
When you are processing the penalty, the NPPS system will automatically make this adjustment once you have selected the relevant box to indicate that the restriction applies. You then enter your calculated reductions as normal.
The restriction not only applies in cases where the person must have been aware of the inaccuracy and failed to act. It also applies in cases where they had failed to consider their position, and identify the inaccuracy sooner.
Circumstances when it may not be appropriate to apply the 10% restriction
Although the restriction will normally apply where there has been a significant delay in making a disclosure or correcting an inaccuracy, there may be circumstances where you consider that it is not appropriate to apply the restriction, for example a one off error that the person would never have had reason to reconsider.
In cases where a person has taken more than 3 years to act and you decide not to restrict the reductions for quality of disclosure, these decisions must be authorised by your manager or an authorising officer and the reason for not applying the restriction should be recorded in the papers.
Examples of how the restriction will apply in practice
Cases where the compliance check started within the three year period, but the disclosure was made after the 3 year period
This will depend on the nature of the disclosure, but generally the 3 year period would run from the date the inaccuracy first occurred up to the point that the person started to make the disclosure. Where a partial disclosure of an inaccuracy is made within 3 years period, the 10% rule would not be applied. In cases with multiple inaccuracies, you should consider the rule separately for each inaccuracy.
Cases where the disclosure was made during a compliance check
In cases where the original inaccuracy occurred over 3 years ago but was only disclosed following the start of a compliance check, this will largely depend on the nature of the error. If a person made a careless error in one year that they had no reason to revisit and the error only came to light during an enquiry, then it is possible that the 3 year restriction would not be appropriate. In other cases, the 3 years should be measured from when the inaccuracy first occurred up to when the disclosure is made.
Cases where a disclosure was made that covered several years, some of which are less than 3 years from when the inaccuracy occurred
In cases where a disclosure covers inaccuracies that occurred for the same or for similar reasons, you should apply the restriction to all of the years being disclosed provided that the date where the inaccuracy first occurred is being disclosed after the 3 years period. This is irrespective of whether some of the inaccuracies are disclosed within the 3 year period. Where the inaccuracies have occurred for different reasons or where there are multiple inaccuracies, you should consider the 3 year rule separately for each inaccuracy for each year.