CH95110 - Penalties for VAT and Excise Wrongdoing: Calculating the penalty: Reducing the penalty: 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 but may be less where the overall disclosure covers a longer period.
For any disclosure made after 5 September 2016 you should now take into account the time that has passed between the date when the wrongdoing occurred and the date of its disclosure.
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 wrongdoing occurred and the time the person told us about the wrongdoing. If they have taken a significant period (normally 3 years) to correct or disclose the wrongdoing, 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 wrongdoing. 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 wrongdoing 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 non-deliberate wrongdoing penalty, the penalty range is 10% 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 20% to 10%. 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 10%. In this example full reductions for telling, helping and giving would result in reductions of 10% and a penalty loading of 20%.
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 applies not only in cases where the person must have been aware of the wrongdoing but failed to act but also in cases where they had failed to consider their position and identify the wrongdoing sooner.
Although the restriction will normally apply where there has been a significant delay in making a disclosure, there may be circumstances where you consider it not to be appropriate.
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.
Cases where the compliance check started within the 3 year period, but the disclosure is made after the 3 year period
This will depend on the nature of the disclosure, but generally the initial period would be up to the point that the person started to make the disclosure. Where a partial disclosure of a wrongdoing is made within 3 years period, the 10% rule would not be applied. In cases involving more than one wrongdoing, you should consider the rule separately for each wrongdoing.
Cases where the disclosure was made during a compliance check
In cases where the original wrongdoing 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 disclosure.