If you become liable to pay a tax or register for a tax that HMRC has not already been informed about, you must notify HMRC within the relevant time limit. Failing to do so can result in a financial penalty in addition to the tax and any interest due.
A failure to notify can arise in a range of situations, including when a business exceeds the VAT registration threshold, a company becomes liable for Corporation Tax or an individual first becomes liable to Income Tax when self-employment profits or investment income first arises. In some cases, businesses must also register before carrying out certain taxable activities.
HMRC calculates penalties according to the circumstances of the failure. Factors to be considered include whether the failure was deliberate, whether it was disclosed voluntarily before HMRC identified it, and how much assistance was provided during the disclosure process. Taxpayers who make an unprompted disclosure and fully cooperate with HMRC can often receive significantly lower penalties than those who wait for HMRC to discover the issue.
The level of penalty depends on the type of failure and the taxpayer’s behaviour. Penalties can range from a percentage of the tax liability that should have been reported, with lower penalties generally applying where a taxpayer makes a voluntary disclosure and cooperates with HMRC. Higher penalties can apply where the failure was deliberate or where HMRC discovers the issue before the taxpayer comes forward. In the most serious cases, penalties can be up to 100% of the tax due. HMRC will not normally charge a penalty where there is a reasonable excuse, provided the taxpayer notified HMRC without unreasonable delay after the reasonable excuse ended.
If you think you may have failed to notify HMRC of a tax liability, it is usually better to act promptly, and we would be happy to advise you. Coming forward voluntarily and providing complete information can reduce the level of any penalty and help resolve matters more quickly.
