HMRC introduced a new penalty system effective from 1 April 2010 designed to stop people who do not take care from gaining an unfair advantage. However the more cynical may think it is just another way of extracting more money from the tax payers.

Whatever your views failing to inform the revenue about your new taxable activity or any change in your tax situation just got potentially very expensive.

Make sure you inform the revenue as soon as:

You become chargeable or liable to pay tax
Your turnover reaches the point when you have to register with us
You start a commercial activity which must be registered with HMRC

The table below shows the penalty ranges:

If you have a 'reasonable' excuse for not notifying the revenue on time they may reconsider the penalty and reduce it to nil. The reasonable excuse must have applied to the whole period you failed to notify and you must inform them as soon as possible after the reasonable excuse ended.

Reasonable excuses are usually exceptional events beyond your control such as:

The death of a partner or a loved one
You, your partner, or a close relative had a serious illness

As you can see the biggest reductions are available to those who make an unprompted disclosure. A disclosure is treated as unprompted if you inform HMRC when you have no reason to believe they have discovered or are about to discover it. Anything else is a prompted disclosure.

BUT, the easiest way to avoid the penalties is to ensure all your tax affairs are in order and if you have been putting off getting in touch with the revenue or arranging an accountant why not get in touch with us for some advice.