Failure to notify
HMRC of chargeability
Income tax
If a person, who has not received a notice to deliver a tax return from HMRC under s.8 of the Taxes Management Act 1970 (TMA) but is otherwise chargeable to income tax, has an obligation under s.7(1) of TMA to notify HMRC that s/he is chargeable to income tax. The taxpayer has six months after the end of the tax year to notify HMRC i.e. before 05 October following the tax year.
There could be a variety of reasons why a person may be chargeable to income tax. A tax-payer:
· Becomes self-employed
· Has income from land and property in the UK
· Has taxable foreign income
· Has annual income (even if employed) of £100,000 or more
· Has untaxed income which cannot be collected through your PAYE code.
S. 7(3) to (7) of TMA excepts a taxpayer from this obligation if s/he has no net liability to income tax for the year, or has had all the tax deducted at source to meet the net income tax liability for the year.
Capital Gains Tax
The obligation to notify HMRC of chargeability to capital gains tax under the Taxation of Chargeable Gains Act 1992 (TCGA) is created by the same legislation as for income tax. If a person sells shares, property or other assets ('chargeable event') and as a result has chargeable gains during the tax year in excess of the annual exempt amount, s/he should notify HMRC within six months after the end of the tax year i.e. before 05 October following the tax year.
Corporation Tax
Similarly, para 2of Schedule 18 to the Finance Act 1998 creates an obligation on every company that is chargeable to tax for an accounting period to notify HMRC of its coming to chargeability to tax. Where the company has not received a notice to deliver a tax return from HMRC, it should notify within 12 months from the end of the accounting period.
Value Added Tax
Paragraphs 5,6 & 7 of Schedule 1 to Value Added Tax Act 1994 (VATA) creates an obligation on the part of the taxpayer to notify HMRC within 30 days of the end of the relevant month in which the VAT registration threshold has been breached or within 30 days after a vat-registered business has been transferred to non-vat registered business. Similar provisions exist within VATA with regard to distance sales, acquisitions etc. where it is obligatory on the part of the taxpayer to notify HMRC.
Failure to notify
Schedule 41 to the Finance Act 2008 has laid down tax-geared penalties for failure to notify HMRC of chargeability to tax as explained above.
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Reason
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Disclosure
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Minimum Penalty
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Maximum Penalty
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Where there is a
Reasonable Excuse
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No penalty
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No penalty
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Not deliberate
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Unprompted
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0% within 12 months of tax being due otherwise 10%
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30%
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Prompted
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10% within 12 months of tax 30% being due, otherwise 20%
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30%
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Deliberate
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Unprompted
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20%
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70%
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Prompted
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35%
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70%
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Deliberate and
Concealed
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Unprompted
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30%
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100%
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Prompted
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50%
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100%
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Now what constitutes a ‘reasonable excuse’ is explained separately.
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