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HMRC penalties can be scary, especially when you don’t exactly know what they mean. If you’ve gotten a failure to notify penalty, we’ll help you understand what went wrong, where it went wrong, and what you can do about it at this stage
What is Failure to notify penalty?
Firstly, let’s talk about what a failure to notify penalty is. In certain circumstances you are legally obliged to declare and pay tax the income you’ve received that tax year. These conditions are not limited to individuals, but also to registered companies and partnerships.
Who needs to notify the HMRC that they are liable for tax
Individuals: Required to notify the HMRC that they are liable to pay tax if they meet the following conditions:
- Taxable income (PAYE) over £100,000
- Rental income over £2,500
- Untaxed income (like tips or commission) over £2500
- Savings or Investment income over £10,000
- Your state pension is your only income and exceeded your personal allowance
- You are a sole proprietor with an income over £1,000
- You earn international income
- Claiming child benefit and your (or ex partner’s) income exceeds £50,000
- You’re a trustee of a trust or a registered pension scheme
Companies: Required to notify the HMRC of being liable to pay tax and VAT if they meet the following conditions:
- When your company exceeds the VAT registration threshold
- The VAT supplies you make change
- Your company is chargeable to tax for an accounting period — if you’ve not been sent a notice to file a tax return, you must tell us within 12 months of the end of the accounting period
Corporations also need to report if they have nothing to pay to the HMRC.
It is always your responsibility to inform the HMRC that you owe them tax, whether you are an individual (PAYE and Sole Traders), or a registered business.
Failure to Notify Time Limits
There are different time limits depending on which tax thresholds you have exceeded. A summary is provided below:
30 Days
- Your business exceeds the VAT registration threshold (£85,000)
- The VAT supplies you make change
12 months
- Company is chargeable to tax for an accounting period
6 Months
- Profits from self-employment exceeds £1,000
- No earned income but your investment income first reaches a level that makes you chargeable to tax
You will not be charged with a failure to notify if you meet all of the the following conditions:
- You have a reasonable excuse for the failure
- Only applicable if you have taken reasonable care to prepare for your tax filing, but due to circumstances outside of your control, you were not able to file your taxes and attempted to file your tax as soon as you could.
- The failure was not deliberate
- You notified the HMRC as soon as you could after your reasonable excuse ended.
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Failure to Notify Penalties
Different failure to notify penalties are applicable depending on your circumstances. There are 4 main penalty ranges which include:
- Non-Deliberate
- Deliberate
- Deliberate and Concealed
- Prompted or Unprompted
The following penalties apply based on the circumstances of your case:
Reason for failure to notify | Type of disclosure | Penalty |
Reasonable excuse |
| No penalty |
Not deliberate | Unprompted | 0%-30% within 12 months: after that 10%-30% |
Not deliberate | Prompted | 0%-30% within 12 months; after that 20%-30% |
Deliberate | Unprompted | 20%-70% |
Deliberate | Prompted | 35%-70% |
Deliberate and concealed | Unprompted | 30%-100% |
Deliberate and concealed | Prompted | 50%-100% |
I’ve failed to notify the HMRC, what now?
If you are looking to receive the lowest penalty possible you should follow the following steps:
- Reach out to your accountant to discuss steps moving forward
- Notify the HMRC either by phoning them or registering online (Just telling them can give up to 30% reduction in your penalty fee)
- Gather as much information (financial records as well as your reasonable excuse information if applicable) as possible of what you failed to notify.
- Assist the HMRC in whatever way you can (assisting them can give you up 40% reduction in your penalty)
- If you want to reduce your penalty even more (Up to 30% , you can give the HMRC access to the information that they request.
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