ECSH82800 - Sanctions for non-compliance: financial penalties: financial penalties framework: type 3 penalties

Type 3 penalties can be charged on a business or an individual in the following circumstances

1)  Failure to notify HMRC of material changes or amending inaccuracies to information provided at registration or subsequently

Where a business provides information to HMRC under Regulation 57(1), before or after it is registered, it is required to update HMRC with any material changes to that information within the required timeframe. Similarly, if the information provided contains inaccuracies, the business is required to correct those inaccuracies when it becomes, or is made, aware of the inaccuracies within the required timeframe.

The information that businesses may have failed to notify HMRC, or which may contain inaccuracies, can be categorised under two headings

  • failure to notify material changes and/or inaccuracies to information provided
  • failure to notify change of beneficial owners, officers or managers and/or inaccuracies 

This excludes changes to compliance officer and nominated officer, explained further below.

If a business has knowingly provided false or misleading information, other sanctions should be considered.

Regulation 57(4) specifies that where the business has provided information under Regulation 57(1), whether before or after it is registered, it is required to notify HMRC of any material changes or correct any inaccuracy it has become aware of in that information provided within 30 days beginning with

  • the date of the change
  • the discovery of the inaccuracy, or
  • within such later time as may be agreed with HMRC

Failure to notify material changes and/or correction of inaccuracies will result in a £2,500 penalty per breach. If a business fails to do so within the timeframe, but subsequently provides an unprompted disclosure in relation to failure to notify the material changes and/or corrects any inaccuracies, a 50% reduction will be applied.

Example

A business does not inform HMRC of two additional premises and is therefore charged £5,000 (2 breaches x £2,500). The two premises were identified during a HMRC intervention and so this was not an unprompted disclosure. The 50% reduction will not be applied.

2)  Changes to compliance officer and nominated officer

Regulation 21 requires that the business must appoint an individual as a nominated officer and, where appropriate, a compliance officer. Within 14 days of that appointment, HMRC must be notified of the identity of the individual and any subsequent appointment to either of those positions. Failure to notify HMRC of the required information within this timeframe will result in a £5,000 penalty per breach. If a business fails to do so within the timeframe, but subsequently provides an unprompted disclosure in relation to failure to notify the appointment/change of nominated officer and/or compliance officer, a 50% penalty reduction will be applied.

3)  Where a business and/or individual fails to comply with requirements under Regulation 26

Regulation 26(1) prohibits a person from being a beneficial owner, officer or manager of a firm or a sole practitioner unless that person has been approved by HMRC. Under regulation 26(9) a person is not approved, or any approval given to that person is not valid, if

  • that person has an unspent conviction, listed within Schedule 3 of the Money Laundering Regulations 2017 (MLR 2017), and
  • that person is subsequently convicted of an offence within Schedule 3 MLR 2017

Regulation 26(4) requires that a business must take reasonable care to ensure that no-one is appointed, or continues to act, as an officer or manager of the business unless that person has been approved and that the approval has not ceased to be valid or that person has applied for approval and the application is still to be determined.

When considering ‘Reasonable care’ we need to consider what is unreasonableness. Unreasonableness is defined by the Wednesbury test (Associated Provincial Picture Houses Ltd v Wednesbury Corporation (1948)) as being ‘so unreasonable that no reasonable person acting reasonably could have made it’.

If a person (P) has been approved and is convicted of an offence listed within Schedule 3 MLR 2017, Regulation 26(10) requires

  • that P to notify HMRC of the conviction within 30 days of the date on which they were convicted
  • the business, for which that P was approved, to notify HMRC of the conviction within 30 days of the date on which they became aware of the conviction

HMRC may issue Type 3 penalties in the following scenarios

  • against a business for not taking reasonable care and appointing or allowing a person to act as an officer or manager of the business without approval, and/or
  • against a business for failing to inform HMRC about an approved persons (P) Schedule 3 conviction within 30 days of the date that the business became aware of Ps conviction
  • against an approved person (P) for failing to inform HMRC about a Schedule 3 conviction within 30 days of conviction

These breaches, under Regulation 26, will result in: 

  • For the business £10,000 penalty per breach. Due to the severity of the breach, there is no reduction available for an unprompted disclosure
  • For the individual P £2,500 penalty per breach

Once the decision to issue a penalty has been made, there should be a review of whether the amount is considered appropriate, which takes into account all relevant factors within Regulation 83”.

Prompt payment

If the penalty is paid within 30 days of the date of the penalty notice, an early payment reduction is applied. The early payment reduction is 25% of the penalty amount. The Penalty Administration Charge is not subject to the early payment reduction.