EM4551 - Penalties: Failure to Notify Chargeability: 1995/6 and SA Years

TMA70/S7
FA98/SCH18/PARA 2
FA04/S55
FA04/S55A

Income Tax and Capital Gains Tax

In regimes introduced since 2007 there is an obligation for any person who is chargeable to Income Tax (IT) or Capital Gains Tax (CGT) and who has not received a notice under TMA70/S8 (for trustees S8A) to file a return etc. to notify chargeability for any tax year within 6 months of the end of that year. Notice is to be given to an officer of HMRC.

There is no requirement to notify chargeability where there is no liability to IT or CGT or where sufficient tax has been deducted at source to meet the net liability for the year unless

  • the customer is liable to pay tax at a rate that is higher than the rate at which any tax has been deduced at source, or
  • the customer is liable to a High Income Child Benefit Charge (HICBC).

HMRC may by virtue of TMA70/S8B withdraw a notice under S8 or S8A if the person requests that HMRC withdraw the notice to file because they have no income that requires an SA return to be filed. The person may be liable to penalties for failure to notify if HMRC agree to withdraw the notice and subsequently find out that they were liable to IT or CGT, see CH72700. 

Corporation Tax

For CTSA by virtue of FA98/Sch18/PARA2 there is an obligation for any company which is chargeable to tax for an accounting period and has not received a notice requiring a company tax return under FA98/SCH18/PARA3 to notify chargeability within 12 months from the end of that accounting period.

A company is also required by FA04/S55 to notify not later than 3 months after the accounting period began when it first comes within the charge to Corporation Tax (CT) or comes back into charge after a period of dormancy.

With effect from 6 April 2020, there is no requirement to notify chargeability to CT for an accounting period under FA98/Sch18/PARA2 where all income on which a company is chargeable to CT has had tax deducted at source which meets the full CT liability for that period and the company has no chargeable gains in the same period.  

Similarly, with effect from 6 April 2020, the requirement for a company to notify when it first comes within the charge to CT, or comes back into charge after a period of dormancy, is removed where the company reasonably expects that all its income chargeable to CT will have had sufficient tax deducted at source to meet its full CT liability for the period and that it will have no chargeable gains for the period.

Employees with New Expenses or Benefits

It may be that, at the 6 month point, employees will be unsure whether information about new expenses or benefits for the previous tax year has been or will be taken into account by HMRC for PAYE. In practice, where

  • employees have received a copy of P11D information from their employer,
  • they are satisfied that the information is correct and complete, and
  • they have no reason to believe that the P11D information has not been passed to the HMRC,

they will not be required to notify their chargeability on this account alone.

Amount of Penalty

The penalty is based on the amount of net tax due but unpaid at 31 January following the tax year for which the liability arises. This means that, even if a taxpayer fails to notify chargeability by 5 October, there will be no penalty payable if all tax is paid in full by the following 31 January.

For CTSA the penalty is a sum not exceeding the amount of tax payable for the accounting period in question that remains unpaid 12 months after the end of the period.

Failure to comply with FA04/S55 may render a company liable to a penalty under S98 TMA70, see EM4901 for accounting periods ending before 31 March 2010. Although the obligation under S55 remains in place after this date there is no corresponding penalty because the S55 failure penalty was repealed with the introduction of penalties under FA08/SCH41.  

All failure to notify penalties are subject to there being no ‘reasonable excuse’ for the failure, see EM5150+.