‘Failure to notify penalty’
Taxpayers who fail to inform HMRC of changes relevant to their tax status can be subject to a penalty known as a ‘failure to notify’ penalty. With effect from 1 April 2010 the penalty will apply to twenty separate taxes including corporation tax, VAT, income tax, capital gains tax and Class 4 national insurance contributions.
In order to avoid being subject to a failure to notify penalty, taxpayers must ensure that they notify HMRC when their circumstances change, for example where their turnover reaches a registration threshold or they start a new business activity.
HMRC provide the following examples of when a failure to notify penalty can be incurred:
- Businesses that exceed the VAT registration threshold and do not notify HMRC within 30 days of doing so.
- Taxpayers who have not received a self-assessment return or ‘notice to file’ form and fail to inform HMRC that they need one because they have untaxed income or capital gains to declare.
- Businesses that have not received a corporation tax return or ‘notice to file’ form and fail to inform HMRC that they have become chargeable to tax.
- A taxpayer who makes a taxable profit from self-employment for the first time, but fails to inform HMRC that this makes them liable to pay tax.
The penalties can range from 0% where there is a reasonable excuse to up to 100% of the tax where an error is deliberate and concealed. Taxpayers have the right to appeal the penalty imposed to a Tribunal or request an internal review by HMRC.