HMRC can apply tax-geared penalties if they issue a taxpayer with a tax assessment that is too low and the taxpayer fails to tell HMRC that it is too low.
This is a freeview guide.
- Subscribers' version of this guide: Penalties for failure to notify an under-assessment
Tax penalties apply for failure to notify HMRC about an under-assessment of tax.
- A taxpayer has 30 days to take reasonable steps to notify HMRC about the under-assessment.
In deciding what steps (if any) are reasonable HMRC must consider:
- Whether the taxpayer knew or should have known about the under-assessment.
- What steps would have been reasonable to take to notify HMRC.
Penalties for failure to notify an under-assessment are applied under Schedule 24 FA 2007.
A penalty can only apply if there is a potential loss of tax.
The maximum penalty percentage is 30%.
The minimum penalty percentage, for an unprompted disclosure, is 0%.
- Prompted disclosure: If HMRC discover the under-assessment and the taxpayer then discloses, the penalty range will be 15%-30% of the tax under-assessed.
- Unprompted disclosure: If the taxpayer notifies HMRC of the under-assessment, the penalty range is 0%-30%.
How to calculate a penalty for failure to notify an under-assessment
1. Calculate the potential lost revenue (PLR); this is the amount of tax under-assessed.
2. Decide whether the disclosure is prompted or unprompted.
3. Apply reductions, if possible, for the quality of disclosure.
4. Calculate the penalty rate.
5. Calculate the penalty.
6. Consider other reductions for mitigating factors, if any.
See Penalties: Error, or Mistake
Appeal
You may appeal a decision of HMRC within 30 days of receiving a penalty assessment.