Many individuals and business owners do not realise they must tell HMRC about certain changes to their circumstances, and these changes often need reporting within specific time limits. Failing to do so can result in a failure to notify HMRC penalty, even if the mistake was unintentional.
At Cobble, we help clients understand their tax responsibilities, meet reporting deadlines and avoid unnecessary penalties. Taking action early can often prevent minor issues from becoming much more costly problems.
What Is a Failure to Notify HMRC?
A Failure to Notify HMRC occurs when an individual or business does not inform HMRC about a tax liability within the required deadline.
This can happen in a variety of situations, including:
- Exceeding the VAT registration threshold.
- Becoming liable for Corporation Tax.
- Starting self-employment and generating taxable income.
- Receiving investment income that creates a tax liability.
- Carrying out activities that require registration under a specific HMRC tax regime.
The notification deadline depends on the tax involved, which is why obtaining professional advice as soon as your circumstances change is so important.
What Penalties Can Apply?
HMRC can charge a penalty when a taxpayer fails to notify them of a tax liability or submits the notification after the deadline.
The amount charged will depend on several factors, including:
- Whether the failure was careless, deliberate or deliberate and concealed.
- Whether HMRC discovered the issue before the taxpayer came forward.
- How quickly the taxpayer addressed the problem.
- The level of cooperation provided during HMRC’s enquiries.
In the most serious cases, penalties can be as high as 100% of the tax that should have been paid.
Can a Failure to Notify HMRC Penalty Be Avoided?
In some circumstances, yes.
HMRC may decide not to charge a penalty where a taxpayer has a reasonable excuse, the mistake was not deliberate and the issue was corrected without unnecessary delay.
Every situation is different, and HMRC will consider the facts of each case before making a decision. Providing a clear explanation and supporting evidence can significantly improve the outcome.
Why Voluntary Disclosure Matters
If you realise that you should have informed HMRC about a tax liability, it is often better to act before HMRC contacts you.
This is known as an unprompted disclosure and can lead to a substantial reduction in any penalty that may be charged.
Taxpayers who voluntarily disclose issues often receive a more favourable outcome. This is especially true when they provide accurate information and cooperate with HMRC.
How HMRC Calculates Penalties
When deciding the level of a Failure to Notify HMRC penalty, HMRC will consider:
- The amount of tax involved.
- The behaviour that caused the failure.
- Whether the disclosure was prompted or unprompted.
- The quality of the disclosure and the taxpayer’s cooperation.
Penalties are often lower when taxpayers take responsibility and work proactively to resolve matters.
Are There Other Consequences?
A Failure to Notify HMRC can have consequences beyond financial penalties.
Where HMRC believes a failure was deliberate, it may increase scrutiny of future tax affairs and carry out additional compliance checks. In serious cases, HMRC may publish details of the taxpayer involved or pursue a criminal investigation.
Directors and other company officers can also become personally liable for certain penalties in specific circumstances.
How Cobble Can Help
Tax rules often become more complicated as businesses grow. Changes in personal circumstances can also create new obligations.
If you are unsure whether you need to notify HMRC about a change, or you think a deadline may have been missed, our team can help you understand your position and take the right steps to resolve the issue.
Seeking advice early can reduce the risk of penalties, provide peace of mind and help keep your tax affairs on track.
Need Advice?
If you are concerned about a Failure to Notify HMRC, contact Cobble today. We can also help if you are unsure whether you have met your reporting obligations.