HMRC have changed their view as to how they calculate penalties for error or mistake in a tax return. They have updated a number of compliance checks factsheets over recent weeks and this has lead to confusion as to what extent penalties will be reduced for the timing of a disclosure.

When HMRC carry out a compliance check, they often present the taxpayer with a factsheet giving general information about the check or the possible penalties that may be charged in the event that there is an Error in Returns or Documents or a Failure to Notify.

A number of these factsheets have been updated since the middle of December 2017 and they include new wording which HMRC has said is updated to reflect new legislation.

The new wording worries advisors and taxpayers, particularly as, on review of the more recent Finance Bills and Acts, it appears that there was no such change in legislation.

The updates concern the reductions to penalties that HMRC give for the quality of a disclosure. The factsheets now include the following wording, or a slight variation in the case of a failure to notify:

“When calculating penalties for inaccuracies we’ll take into account how long it’s taken for you to tell us about the inaccuracy. If you’ve taken a significant period (normally 3 years) to correct or disclose the inaccuracy we’ll normally restrict the amount of reduction given for disclosure.

We’ll restrict the penalty range by 10 percentage points above the minimum to reflect the time taken before working out the reductions for telling, helping and giving.”

The previous versions simply referred to a smaller reduction to penalties if there was a delay in ‘telling’ HMRC.

Its now up to HMRC to explain the meaning of the change, and to confirm whether the 3 years apply from the date of the disclosure or the date of the inaccuracy. The wording used appears to suggest a change in policy, in that a 3 year delay to disclose the inaccuracy, even one you were not aware of for that period, will not get the full reduction for ‘telling’.

This would be a shift in the way HMRC handles checks and is contrary to what has been, and currently still is, found in HMRC’s manuals.

An archived version (2 February 2010) of HMRCs Compliance Handbook manuals can be found on the national archives website. CH82440 confirms that “Telling” includes three parts, one of which is timing:

“The timing is only relevant to the period over which the disclosure is made, and not how long since the inaccuracy arose before the disclosure. When the person tells you about an inaccuracy in their return they must tell you all the facts at that time. If they do not, they may not receive the full reduction.”

The current equivalent to the above is CH82444 which now says:

“where a person has taken a significant period to correct their non-compliance (normally around 3 years), or where they have previously been able to make their disclosure through one of HMRCs offshore facilities, they can no longer expect HMRC to agree full reduction to for disclosure. In such cases it is unlikely that HMRC would reduce the penalty more than 10 percentage points above the minimum of the statutory range”.

This section of the current HMRC manuals goes on to discuss how the timing of the disclosure affects the reduction for ‘telling’:

  • If it is a Deliberate inaccuracy, i.e. you already know it is inaccurate, then the timing ‘clock’ will effectively start immediately.
  • If it is a careless inaccuracy, then the full reduction for telling will be available if the disclosure is made as soon as they become aware of it.

The manuals (old and new) seem to suggest that the 3 year ‘time-limit’ referred to in the factsheets applies from the date that the taxpayer discovered the error. Admittedly, this is not what the factsheets now say and, as there is no legislation to refer to, there can be no way to know for certain if this is how HMRC will apply the ‘rules’, until we see some real-life cases.

It seems as though HMRCs attempt to be more transparent, and to clarify how they approach the reduction for ‘telling’, has in fact had the opposite effect and caused far more confusion.

These changes do not affect the availability of a Reasonable excuse, nor will it cause penalties to arise in cases where there is Reasonable care.

The factsheets that have been updated with the new wording are:

  • General information factsheets:
    • Compliance checks: CC/FS1a
    • Campaigns and Projects: CC/FS1b
    • Large and complex businesses: CC/FS1c
    • Excise matters: CC/FS1d
  • Compliance check penalty factsheets:
    • Inaccuracies in returns or documents: CC/FS7a
    • Not telling HMRC about an under-assessment: CC/FS7b
    • Failure to notify: CC/FS11
    • VAT and excise wrongdoing: CC/FS12


Penalties: Errors in Returns and Documents

Penalties: Errors in Returns and Documents (subscriber version)

Penalties: Failure to Notify

Penalties: Deliberate Behaviour

Client guide to Reasonable care and tax penalties

Grounds for appeal: Reasonable excuse

External link HMRCs factsheets



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