This guidance reflects the provisions of Part 5 of the Tax Collection and Management (Wales) Act 2016 (‘TCMA’) (chapters 2 – 7).
Contents
TCMA/3010 Introduction
It is important that the collection and management of Welsh devolved taxes operates fairly and efficiently. The WRA recognises that most taxpayers want to comply with their obligations.
The WRA has various powers to help check that taxpayers meet their tax responsibilities and pay the right amount of tax at the right time, to ensure that the taxes are operating as intended and to detect and to deter the minority who do not comply with their obligations.
To encourage compliance and deter non-compliance a range of fixed amount, daily and tax-geared civil penalties apply to the devolved taxes. The WRA has the power in certain circumstances, and for certain penalties, to suspend or waive a penalty.
This section provides guidance on the civil penalties regime which applies to the devolved taxes and which is contained in TCMA (and mainly Part 5 of that Act), including the assessment and enforcement rules underpinning each penalty.
Taxpayers have the right to request a review or appeal to the Tribunal in relation to any penalty issued by WRA.
Taxpayers are not liable to any penalty described in this guidance if they have already been convicted of a criminal offence arising out of the same conduct. This is known as the ‘double jeopardy’ rule.
The guidance in this section is structured as follows:
- Penalties and the Human Rights Act 1998
- Penalties for failure to make a tax return
- Penalties for failure to pay tax
- Penalties for failure to notify under-assessment/under-determination
- Penalties relating to record-keeping
- Penalties relating to investigations
- Penalties relating to inaccuracies, reasonable care and suspension
- Determining and calculating the penalty amount
- Reasonable excuse
- Reduction for disclosure
- Special circumstances
- Appeals and reviews of penalty decisions
- More than one penalty chargeable
TCMA/3020 Penalties and the Human Rights Act 1998
Article 6 of the European Convention on Human Rights (“ECHR”) is incorporated into UK law by the Human Rights Act 1998. Article 6 provides a person with various rights and safeguards when WRA is deciding whether to impose certain penalties.
The ECHR and case-law defines certain penalties as “criminal” penalties, such as penalties imposed because of deliberate behaviour. Such penalties are not criminal under UK law (i.e. they are civil penalties), although they are regarded as “criminal” for the purposes of the ECHR.
Because these types of penalties are regarded as criminal by the ECHR, taxpayers are afforded rights by Article 6. These include:
- the right for a person to be informed promptly of the nature of, and reason for, any charge against them
- an entitlement to a fair and public hearing within a reasonable time, and
- the right not to self-incriminate
If WRA believes that a penalty that might be due is likely to engage Article 6, the person who may be liable to the penalty will be notified of this fact.
TCMA/3030 Penalties for failure to make a tax return
A taxpayer required to make a tax return is liable to a £100 penalty if they fail to make a tax return on or before the filing date.
For LTT, the filing date is 30 days from the effective date of the transaction. This is usually the completion date.
For LDT, the filing date is the last working day of the month following the month in which the accounting period ends (see LDTA/5010 and LDTA/5020 for more information).
If the failure to make a tax return continues, the taxpayer is liable to further penalties, as follows:
| Failure to make a tax return | Penalty |
|---|---|
| 1 day late | £100 |
| 6 months late | Extra £300 or 5% of any unpaid tax, whichever is greater |
| 12 months late | Another £300; or 5% of any unpaid tax, whichever is greater |
However, if the taxpayer withholds information that would enable or assist the WRA to assess their liability to a devolved tax, the penalty amount is the greater of:
- £300, or
- an amount not exceeding 95% of the amount of the devolved tax to which the person would have been liable if the tax return had been made
Any penalties in this section must be paid within a period of 30 days beginning with the date on which the notice of the penalty is issued, unless the taxpayer requests a review or appeals to the tribunal.
The WRA may reduce a penalty for failure to make a tax return if the taxpayer discloses information which has been withheld as a result of that failure.
LDT-specific penalties for multiple failures to make tax returns
Where a taxpayer becomes liable to a penalty for failure to make a return for landfill disposals tax (LDT), further failures to make returns within a defined penalty period will attract a higher penalty rate.
The penalty period begins with the day after the filing date for the tax return, and ends 12 months later. The penalty period may be extended on the same basis where there are further failures to make tax returns.
The penalties are as follows:
| Initial failure within the penalty period | £200 |
|---|---|
| Second failure within the penalty period | £300 |
| Third and subsequent failures within the penalty period | £400 each time |
TCMA/3040 Penalties for failure to pay tax
A taxpayer is liable to a penalty if they have failed to pay an amount of devolved tax on or before the penalty date in respect of that amount.
For land transaction tax, the penalty is 5% of the amount of unpaid tax.
For landfill disposals tax, the penalty is 1% of the amount of unpaid tax unless it is the 2nd or subsequent failure to pay landfill disposals tax within a specified penalty period.
LDT specific penalties for multiple failures to pay tax
Where a taxpayer becomes liable to a penalty for failure to pay landfill disposals tax, further failures to pay tax within a defined penalty period will attract a higher penalty rate.
The penalty period begins with the day after the penalty date, and ends 12 months later. The penalty period may be extended on the same basis where there are further failures to pay landfill disposals tax.
The penalties are as follows:
| Initial failure within the penalty period | 2% of the unpaid tax |
|---|---|
| Second failure within the penalty period | 3% of the unpaid tax |
| Third and subsequent failures within the penalty period | 4% of the unpaid tax each time |
Penalty for failure to repay a tax credit on time
The WRA may impose a penalty where the WRA issues a taxpayer with an assessment to recover an amount of tax credit that ought not to have been paid (or set off against a tax liability), or that has become excessive, and the amount assessed is not paid by the taxpayer on time. The penalty is 5% of the amount payable as a result of the WRA assessment.
Penalty date
The penalty date (the date when a taxpayer becomes liable to a penalty) for particular penalties is set out in the table below:
| Item | Devolved tax | Amount of tax | Penalty date |
|---|---|---|---|
| 1 | Land transaction tax “LTT” | Amount (or additional amount) payable as a result of a tax return made by the buyer in a land transaction (unless the amount falls within item 8 or 9). | The date falling 30 days after the filing date for the return. |
| 2 | Landfill disposals tax “LDT" | Amount payable as a result of a tax return. | The date falling 30 days after the filing date for the return. |
| 3 | Any devolved tax | Amount payable as a result of a WRA determination made in place of a tax return. | The date falling 30 days after the date by which WRA believes the tax return was required to be made. |
| 4 | Any devolved tax | Amount payable as a result of a WRA assessment made in place of a tax return (unless the amount falls within item 7). | The date falling 30 days after the date by which WRA believes the tax return was required to be made. |
| 5 | Any devolved tax | Amount (or additional amount) payable as a result of a WRA assessment made where a tax return has been made. | The date falling 30 days after the date by which the amount (or additional amount) is required to be paid. |
| 6 | Any devolved tax | Amount (or additional amount) payable as a result of a WRA assessment to recover a tax credit | The date falling 30 days after the date by which the amount (or additional amount) is required to be paid. |
| 7 | Any devolved tax | Amount (or additional amount) payable as a result of an amendment or a correction to a tax return. | The date falling 30 days after the date by which the amount (or additional amount) is required to be paid. |
| 8 | Any devolved tax | Amount (or additional amount) payable as a result of a WRA assessment made for the purposes of making an adjustment to counteract a tax advantage (see Part 3A TCMA ) in a case where a tax return which WRA has reason to believe was required to be made has not in fact been made. | The date falling 30 days after the date by which the amount (or additional amount) is required to be paid. |
| 9 | LTT | Where a deferral request is made under section 58 of LTTA, a deferred amount required to be paid by virtue of section 61(1)of that Act. | The date falling 30 days after the date by which the deferred amount is required to be paid. |
| 10 | LTT | Where a deferral request is made under section 58 of LTTA, a refused amount within the meaning of section 61(2)(a) of that Act. | The date falling 30 days after the date by which the refused amount is required to be paid. |
| 11 | LDT | Amount charged by a charging notice issued under section 48 or 49 of LDTA. | The date falling 30 days after the date by which the amount is required to be paid. |
| 12 | Any devolved tax | A postponed amount within the meaning of section 181G(2) TCMA. | The date falling 30 days after the date on which the postponement period ends (see section 181G as to the calculation of postponement periods). |
Continuing failure to pay devolved tax
If the failure to pay tax continues, the taxpayer is liable to further penalties, as follows:
| Continued failure to pay devolved tax | Penalty |
|---|---|
| Within 6 months (beginning with the date 30 days before the penalty date) | 5% of the unpaid tax |
| Within 12 months (beginning with the date 30 days before the penalty date) | Further 5% of the unpaid tax |
TCMA/3050 Penalty for failure to notify under-assessment or under-determination
A taxpayer is liable to a penalty if they receive a WRA determination or assessment that understates their tax liability, and they fail to take reasonable steps to notify the WRA of this understatement within 30 days of the date that the determination or assessment was issued.
The penalty amount will not exceed 30% of the potential lost revenue.
In deciding what steps (if any) were reasonable, the WRA must consider whether the taxpayer knew, or should have known, about the under-determination or under-assessment.
Assessing and paying the penalty
The WRA must make an assessment and notify the taxpayer of their liability to this penalty (stating the period against which the penalty has been assessed) within the period of 12 months beginning with:
- the end of the ‘appeal period’ (see below) for a decision which corrects the inaccuracy or understatement (such as a decision to make a WRA assessment), or
- if there is no such assessment by the WRA to the tax concerned above, the date on which the inaccuracy or understatement is corrected
The ‘appeal period’ is the period during which an appeal against a WRA decision could be brought, or the period during which an appeal that has been brought has not been finally determined or withdrawn.
Subject to the above time limit, the WRA can make a supplementary assessment of the taxpayer’s liability to this penalty if an earlier assessment made by the WRA was calculated using an underestimate of the potential lost revenue.
TCMA/3060 Penalties relating to record-keeping
If a taxpayer fails to keep and preserve records as required under:
- section 38 TCMA - keeping and preserving records in relation to making a tax return, applies to both LTT and LDT
- section 38A TCMA - this only applies to non-notifiable LTT land transactions
- section 69 TCMA - this applies to both LTT and LDT and relates to claims made under sections 62, 63 or 63A TCMA
- The Tax Collection and Management (Reimbursement Arrangements) (Wales) Regulations 2018, the Landfill Disposals Tax (Administration) (Wales) Regulations 2018 and the Landfill Disposals Tax (Record Keeping) (Wales) Regulations 2018
then they are liable to a penalty of up to £3,000, unless:
- the WRA is satisfied that any facts it reasonably requires to be proved (and which would have been proved by the records not kept or preserved) are proved by other documentary evidence which has been provided to it, or
- the taxpayer satisfies the WRA or (on appeal) the tribunal that there is a reasonable excuse for their failure to comply with these provisions
The WRA must make an assessment and notify the person liable to the penalty within 12 months of the date on which it first believed the taxpayer had failed to comply with their obligations to keep and preserve records.
The penalty must be paid within 30 days from the date on which the WRA issues the notice of the penalty assessment, unless the taxpayer requests a review or appeals to the tribunal.
The WRA will charge interest on the amount of any unpaid penalty from the date following the date on which the penalty is due to be paid until it is paid.
A penalty for failure to keep and preserve records is treated as a relevant amount for enforcement purposes. This means that the WRA has the same debt enforcement and recovery powers in relation to this penalty (and other penalties) as it has in relation to tax.
TCMA/3070 Penalties relating to investigations
A taxpayer is liable to a fixed penalty of £300 if they:
- fail to comply with an information notice, or
- deliberately obstruct the WRA (or a person authorised by the WRA) in the course of an inspection or in the exercise of a power that has been approved by the tribunal under section 108 TCMA
If the failure or obstruction continues after the date on which this first fixed penalty of £300 is imposed, the taxpayer is liable to a further penalty (or penalties) of up to £60 for each subsequent day on which the failure or obstruction continues.
This daily penalty amount may be increased if, in relation to an unidentified third party notice, the failure or obstruction continues over a longer period of time. WRA may only impose an increased daily default penalty in relation to this type of information notice where:
- the failure continues for more than 30 days from the date of the penalty notice
- the notice recipient has been told that an application is going to be made for an increased penalty, and
- the tribunal, on application by WRA, determines that a penalty may be imposed.
The tribunal has to take into consideration various factors, such as the cost to the notice recipient of complying with the request. The tribunal cannot set a penalty amount exceeding £1000 per applicable day.
Alternatively, in addition to the fixed £300 and ‘up to’ £60 daily penalties, the taxpayer may be liable to an additional penalty amount. This amount would be determined by the Upper Tribunal.
The additional penalty would be incurred where the WRA has reason to believe that, as a result of continued failure or obstruction, the amount of tax that the taxpayer has paid (or is likely to pay), or the amount that the person has paid (or is likely to pay) in respect of a tax credit, is significantly less than it would otherwise have been for that failure or obstruction.
In determining the amount of the penalty, the Upper Tribunal must have regard to the amount of unpaid tax, or amount unpaid in respect of a tax credit. The penalty must be imposed within 12 months of the later of:
- the date of the initial £300 penalty notice
- the end of the period in which an appeal against the information notice could have been made (but was not), or
- the date on which an appeal against the information notice is determined or withdrawn
The taxpayer is not liable to either the £300 fixed penalty or the ‘up to’ £60 daily penalty if:
- they satisfy the WRA or (on appeal) the tribunal that there is a reasonable excuse for either their failure to comply or obstruction, or
- they fail to do something they are required to do within a limited period of time (such as a requirement in an information notice to produce documents by a specified time), but they did it within such further time as the WRA may have allowed
The WRA must make an assessment and notify the taxpayer of their liability to either penalty (the £300 fixed penalty and the ‘up to’ £60 daily penalty) within 12 months of the date on which they first became liable to the penalty.
The taxpayer must pay the penalty no later than 30 days from the date on which the WRA issued the notice of the penalty assessment, unless:
- the taxpayer gives a notice of review against the penalty, in which case they must pay the penalty no later than 30 days from the date on which the review is concluded and the decision to award a penalty is upheld, or
- the taxpayer gives a notice of appeal against the penalty, in which case they must pay the penalty no later than 30 days from the date on which the appeal is finally determined and the award of the penalty is upheld or the appeal is withdrawn
The WRA will charge interest on the amount of any unpaid penalty from the date following the date on which the penalty is due to be paid until it is paid.
TCMA/3080 Penalties relating to inaccuracies, reasonable care and penalty suspension
A person is liable to a penalty where, owing to a lack of reasonable care (careless behaviour) or deliberate behaviour, they give the WRA a document which contains an inaccuracy that leads to:
- an understatement of a liability to a devolved tax
- a false or inflated statement of a loss relating to a devolved tax
- a false or inflated claim to repayment of devolved tax, or
- a false or inflated claim for a tax credit
An inaccuracy is careless if it is due to the taxpayer failing to take reasonable care. In other words, if reasonable care was taken, an inaccuracy would be neither deliberate nor careless.
The amount of the penalty imposed depends on the behaviour exhibited by the taxpayer. Penalties are then calculated as a percentage of the potential lost revenue. TCMA allows the WRA to impose penalties not exceeding a certain amount.
The WRA will apply penalty ranges as summarised in the table below:
|
Type of behaviour |
Unprompted disclosure |
Prompted disclosure |
|---|---|---|
|
Reasonable care taken |
No penalty |
No penalty |
|
Careless |
0% to 30% |
15% to 30% |
|
Deliberate |
30% to 100% |
50% to 100% |
An inaccuracy which was neither deliberate nor careless on the part of the taxpayer when the document containing the inaccuracy was given to the WRA, is to be treated as being careless if the taxpayer discovered the inaccuracy at a later time and did not take reasonable steps to inform the WRA as soon as was practicable after the inaccuracy was discovered.
Reasonable care
‘Reasonable care’ can simply be defined as the behaviour of a prudent and reasonable person in the position of the person in question.
This was suggested by Judge Berner in the First-Tier Tribunal decision in HMRC v David Collis, where it was noted:
That penalty applies if the inaccuracy in the relevant document is due to a failure on the part of the taxpayer (or other person giving the document) to take reasonable care. We consider that the standard by which this falls to be judged is that of a prudent and reasonable taxpayer in the position of the taxpayer in question.
The WRA recognises that people do make mistakes. In determining whether or not a person has failed to take reasonable care, the WRA will seek to establish whether the person has taken the care and attention that could be expected from a reasonable person taking reasonable care in similar circumstances.
For reasonable care to apply there must be no question, for example, about whether or not the person knew about an inaccuracy when they provided the information or document to the WRA or failed to comply with the relevant requirement. If the person did know about the inaccuracy when they provided the information to the WRA or failed to comply with the relevant requirement, that would be a deliberate inaccuracy or deliberate failure for the purposes of determining the penalty.
In determining whether or not the person failed to take reasonable care, the WRA will examine what the person did (or did not do), and will consider whether a prudent and reasonable person would have done (or not done) that in those circumstances. Although the WRA expects every person to take reasonable care, the WRA cannot determine whether or not they have done so without considering the person’s abilities and circumstances.
For example, the WRA would not ordinarily expect the same level of knowledge or expertise from a self-employed, un-represented individual as from a large multinational company. Large or complex issues would also require a greater level of care to arrive at the correct tax position. Importantly then, the WRA expects taxpayers to take appropriate professional advice where necessary – failure to do so where the transaction clearly required it would be a failure to take reasonable care.
Repeated inaccuracies or failures to comply may, for example, form part of a pattern of behaviour which suggests a lack of care by the person in developing adequate systems for the recording of transactions or preparing tax returns. If the person becomes aware of the causes of an inaccuracy or failure but after this nevertheless repeats the inaccuracy or failure, this may indicate deliberate behaviour on the part of the person in relation to those repetitions.
Examples of when a penalty might not be due (because a person did take reasonable care) include:
- a reasonably arguable view that is subsequently not upheld
- an arithmetical or transposition inaccuracy that is not so large either in absolute terms or relative to a person’s overall tax liability, as to produce an obviously odd result or be picked up by a “sense” check
- a person taking action which leads to the inaccuracy or failure following advice from the WRA that later proves to be wrong, provided that all the details and circumstances were given by the person to the WRA when the advice was sought
- a person acting on advice from a competent adviser which proves to be wrong despite the adviser being given a full set of the accurate facts, and
- a person accepting and using information from another person whose competence the taxpayer could reasonably expect to rely on but where it is not possible to check that the information is accurate and complete
Suspending the penalty
The WRA may, subject to one or more conditions, suspend all or part of the penalty for a careless inaccuracy.
A careless inaccuracy penalty may only be suspended if compliance with a condition of the suspension will help a person avoid becoming liable to any further penalties.
A penalty for a deliberate inaccuracy cannot be suspended.
If the WRA decides that a suspension is justifiable, a notice must be issued to the taxpayer specifying:
- what part of the penalty is to be suspended
- the period of suspension (which cannot exceed 2 years), and
- the condition(s) of suspension which the taxpayer must comply with.
A condition of suspension may specify an action to be taken, and the period within which that action may be taken. WRA will set SMART conditions when suspending a penalty. SMART conditions are:
- Specific – directly related to the business or individual.
- Measurable – the taxpayer will need to be able to ‘evidence’ that the condition has been met at end of the suspension period.
- Achievable – it must be in the taxpayer’s power to meet the condition.
- Realistic – Conditions cannot be unreasonable (for example, it would not be reasonable to require a small one-man business to employ a full-time bookkeeper, conditions must be economically realistic).
- Time bound – there must be a clear date by which the condition(s) must be met.
On the expiry of the period of suspension, the suspended penalty (or part of the penalty that was suspended) is cancelled if the taxpayer satisfies the WRA that they have complied with the suspension conditions.
If the WRA is not satisfied that the taxpayer has complied with the suspension conditions, the suspended penalty (or part of the penalty that was suspended) becomes payable. This will include any interest on the penalty that would have otherwise been chargeable but for the suspension.
If, during the period of suspension, you become liable to another penalty for providing a document to the WRA containing a careless or a deliberate inaccuracy, the suspended penalty (or the part of the penalty that was suspended) becomes payable, together with any interest on the penalty that would have otherwise been chargeable but for the suspension.
TCMA/3090 Determining and calculating the penalty amount
Penalties fall into 2 broad categories: those set at a fixed amount, and those where the amount may vary (usually up to a certain limit).
The WRA will calculate the penalty amount, normally by applying the penalty at the upper limit of each penalty range and then determining whether a reduction may be available in view of the particular circumstances and facts of the case.
The WRA may reduce the amount of the penalty:
- because of special circumstances, or
- if the taxpayer makes a qualifying disclosure to the WRA
Calculating the potential lost revenue
Normal rule
The normal rule for potential lost revenue (‘PLR’) is that it is the additional amount payable to the WRA as a result of:
- correcting an inaccuracy in a document, including an inaccuracy attributable to another person
- failing to tell the WRA about an under-determination or under-assessment
- an inaccurate repayment or credit having been made by the WRA as a result of the inaccuracy, or
- a repayment or credit that would have been incorrectly made by the WRA if the inaccuracy had not been corrected
When determining the PLR for the purposes of calculating the amount of a penalty, the PLR itself may be subject to recovery or retention by a procedure such as a WRA assessment or the WRA formally refusing a claim.
An inaccuracy can affect the tax due in more than one tax period. The additional amount of tax due as a result of putting right an inaccuracy includes any tax effect from that inaccuracy that arises in later or earlier tax periods.
Inaccuracies in other documents that have been given to the WRA for the same transaction or period will be considered separately in terms of calculating penalty amounts.
Potential lost revenue: multiple errors
If the taxpayer is liable to more than one penalty under section 129 TCMA in respect of more than one inaccuracy in the same document, the order in which the inaccuracies are corrected may affect the amount of PLR. Where this is the case, careless inaccuracies are to be taken to be corrected before deliberate inaccuracies.
If the taxpayer is liable to a penalty under section 129 TCMA in respect of one or more understatements in one or more documents relating to a tax period or transaction, in calculating the PLR the WRA will take account of any overstatement in any document the taxpayer has given us in relation to the same tax period or transaction.
Where this is the case, overstatements are to be set against understatements in the following order:
- understatements in relation to which the taxpayer is not liable to a penalty
- careless understatements, and
- deliberate understatements
‘Understatement’ in this case means an inaccuracy that amounts to, or leads to:
- an understatement of a liability to a devolved tax
- a false or inflated statement of a loss relating to a devolved tax, or
- a false or inflated claim to repayment of devolved tax
‘Overstatement’ in this case means an inaccuracy which is not an understatement. In other words, it is an inaccuracy which does not amount to, or lead to, any of the above results.
If the overall effect of the overstatements and understatements is that the tax liability is overstated when the document was submitted, there will be no PLR.
In calculating PLR for the purposes of a penalty under section 129 TCMA, no account is to be taken of the fact that a PLR from the taxpayer (the person who gave the WRA the document containing the inaccuracy) is or may be balanced by a potential overpayment by another person (except to the extent that legislation requires or permits another person’s tax liability to be adjusted by reference to the taxpayer’s tax liability).
Inaccuracies in other documents that have been given to the WRA for the same transaction or period will be considered separately in terms of calculating penalty amounts.
Potential lost revenue: losses
- Where an inaccuracy has the result that a loss is wrongly recorded for the purposes of a devolved tax, and the loss has been wholly used to reduce the amount of tax which is due and payable by the taxpayer, the PLR is calculated in accordance with the ‘normal rule’ (see the first sub-heading in this section, ‘Potential lost revenue: Normal rule’).
- Where an inaccuracy has the result that a loss is wrongly recorded for the purposes of a devolved tax, and either all or part of the wrongly recorded loss has not yet been used to reduce the amount of tax which is due and payable by the taxpayer (and so the tax effect is not yet known), the PLR is:
- calculated in accordance with the ‘normal rule’ (see the first sub=heading in this section, ‘Potential lost revenue: Normal rule’) in respect of any part of the loss (if any) that has been used to reduce the amount of tax which is due and payable by the taxpayer, plus
- a discounted rate of 10% (the discounted rate) of the unused loss. The discounted rate recognises uncertainty about the current tax value of the loss when it is eventually used to reduce the taxpayer’s tax liability.
Both of the above rules 1 and 2 (a loss being wholly or not wholly used to reduce the amount of tax due and payable) apply both to:
- a case where no loss would have been recorded but for the inaccuracy, and
- to a case where a loss of a different amount would have been recorded – in this case, both of the above rules apply only to the difference between the amount recorded and the true amount.
Finally, the PLR in respect of a loss in any case is nil where, because of either the nature of the loss or the taxpayer’s circumstances, there is no reasonable prospect of the loss being used in the future to support a claim to reduce the tax liability of any person.
Whether or not there is a reasonable prospect of any such loss being used depends on the nature of the loss and the taxpayer’s circumstances. In determining whether or not there is a reasonable prospect, the WRA will consider if there is a legal or factual reason which means that the loss can never be used. If the answer to this is ‘yes’, then the PLR for that loss is nil.
Potential lost revenue: delayed tax
Where an inaccuracy (a ‘delayed tax inaccuracy’) results in an amount of tax (‘the delayed tax’) being declared to the WRA later than it should have been, the PLR is:
- 5% of the delayed tax for each year of the delay, or
- a percentage of the delayed tax, for each separate period of delay of less than a year, equating to 5% per year
This rule (the ‘delayed tax rule’) applies instead of the normal rules for calculating the PLR, but it does not apply to a case which falls under the ‘Potential lost revenue: losses’ heading above (i.e. a wrongly recorded loss).
The delayed tax rule covers cases where the delayed tax inaccuracy only has a timing effect so that, comparing an earlier period with a later one, there is no overall loss of tax (assuming the same rate of tax applies to both periods). The rule also covers situations where an over-claim in one period is matched by an under-claim in a later period.
In other words, for the delayed tax rule to apply a delayed tax inaccuracy always has two elements in different tax periods (one understatement and one overstatement) - even if a return for one period (that would contain the overstatement) is not yet due to be filed. Both elements of the delayed tax inaccuracy fall under the delayed tax rule, so the multiple inaccuracy rules (see the previous heading) do not apply to either the understatement or overstatement element of the delayed tax inaccuracy.
If the later return has not yet been filed, the WRA needs to decide whether the reversal would have taken place without the taxpayer doing anything if the inaccuracy had not been discovered. If the WRA is satisfied that it would have been automatically corrected (for example by the taxpayer’s accounting system) then the delayed tax rule applies.
TCMA/3100 Reasonable excuse
The taxpayer can appeal against some penalties if they have a reasonable excuse, for example for their return or payment being late.
A reasonable excuse is something that stopped the taxpayer meeting a tax obligation that they took reasonable care to meet.
There is no statutory definition of a reasonable excuse: it is a matter to be considered in the light of all the circumstances of the particular case. What is reasonable will differ from person to person depending on their particular circumstances and abilities.
The following categories are examples of things which the WRA may consider to be a reasonable excuse for a period of time, but as mentioned before it will ultimately depend on the individual circumstances of each case, which are likely to require many other factors to be taken into account:
- bereavement – the death of a close relative or domestic partner around the time of the failure or obstruction
- serious illness – if this affects the taxpayer or a close relative or domestic partner around the time of the failure or obstruction
- an unexpected stay in hospital that prevented the taxpayer from dealing with their tax affairs
- a loss of records through fire, flood or theft
- an unexpected loss of key personnel
- computer or software failure just before or while the taxpayer was preparing their online return
- unexpected disruption to the WRA’s online services
- postal delays that the taxpayer couldn’t have predicted
- delays related to a taxpayer’s disability
The following won’t be accepted as a reasonable excuse:
- reliance on another person (unless the taxpayer took reasonable care to avoid the failure or obstruction)
- a shortage of funds meaning the taxpayer is unable to pay what is due
- the taxpayer made a mistake on their tax return
While a shortage of funds may not, on its own, be considered a reasonable excuse, the reason for the shortage of funds may be considered by WRA, where it was attributable to events outside the taxpayer’s control. In these circumstances, the WRA will consider whether the shortage of funds could have reasonably been avoided.
In addition, the WRA would not generally consider the following to be a reasonable excuse:
- the tax return is too difficult to complete
- pressure of work
- lack of information
- the fact that the WRA did not remind the taxpayer about something
- ignorance of the law, or
- a combination of any of the above
The onus is on the taxpayer to satisfy the WRA that they had a reasonable excuse at the time of the failure or obstruction (whichever applies). It is important to appreciate that a reasonable excuse does not apply where the failure or obstruction was deliberate.
The taxpayer must comply with their obligations as soon as possible after their reasonable excuse is resolved. If they do not put right the action or inaction without unreasonable delay after the excuse has ended, they remain liable to the penalty.
The WRA will consider carefully both the point at which a reasonable excuse ends and the actions the taxpayer took after that time to put right the action/inaction, or otherwise remedy the failure. Each case must be dealt with on its own merits.
In terms of unreasonable delay, there is no statutory definition of ‘unreasonable’. Again, each case must be judged on its own merits in view of the taxpayer’s abilities and circumstances.
If the WRA decides not to accept the taxpayer’s excuse as reasonable and impose a penalty, they can request a review or appeal in relation to the WRA’s decision.
TCMA/3110 Special circumstances
The WRA may reduce the amount of any of the following penalties (including any interest in relation to the penalty) if it thinks it is right to do so because of special circumstances:
- any penalty for failing to make a tax return
- any penalty for failing to pay tax
- a penalty for an inaccuracy in a taxpayer document given to WRA
- a penalty for an inaccuracy in a taxpayer document given to WRA and which is attributable to a person other than the taxpayer
- a penalty for failing to notify the WRA about an under-determination or under-assessment of tax
The WRA may also decide, because of special circumstances, to apply any of the following actions in relation to these penalties (including any interest in relation to the penalty):
- remitting the penalty entirely
- suspend it, and
- agreeing a compromise with the taxpayer in relation to proceedings for the penalty
Special circumstances do not include taxpayer’s ability to pay, on its own, or the fact that a potential loss of revenue to the WRA by the taxpayer is balanced by a potential over-payment to the WRA by someone else.
To be considered as special circumstances, the circumstances in question must apply to the taxpayer and must not be general circumstances that apply to many taxpayers by virtue of the penalty legislation.
Special circumstances are something that is not otherwise provided for in legislation. So, for example, they will not include:
- matters that amount to a reasonable excuse or reasonable care, or
- the usual factors - telling, helping and giving access - which the WRA takes into account when considering whether or not to reduce the amount of a penalty for quality of disclosure
Special circumstances are uncommon or exceptional circumstances that should be clearly recognisable as such and are completely separate from the other considerations mentioned above.
Special circumstances may include the fact that the WRA has agreed that a person may pay an amount of devolved tax in instalments over an agreed period, but this may not be decisive; WRA will weigh up the circumstances of each particular case and consider all relevant factors.
TCMA/3120 Reduction for disclosure
Qualifying disclosures
The WRA may reduce the amount of the following penalties if the taxpayer makes a qualifying disclosure to the WRA:
- a penalty for an inaccuracy in a taxpayer document given to the WRA
- a penalty for an inaccuracy in a taxpayer document given to the WRA and which is attributable to another person
- a penalty for failing to notify the WRA about an under-determination or under-assessment of tax
A qualifying disclosure in relation to a penalty for an inaccuracy must go beyond the mere submission of a return.
A ‘qualifying disclosure’ (under section 139(2) TCMA) means disclosure of:
- an inaccuracy
- a supply of false information or withholding of information, or
- a failure to disclose an under-assessment or under-determination
The taxpayer makes a qualifying disclosure to the WRA (under section 139(3) TCMA) by:
- telling the WRA about it
- giving the WRA reasonable help in quantifying the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment or under-determination, and
- allowing the WRA to access the taxpayer’s records so the WRA can ensure that the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment or under-determination is fully corrected
Any reductions for a qualifying disclosure may reflect (under section 139(4) TCMA):
- whether the disclosure of the relevant information was prompted or unprompted, and
- the quality of the disclosure
Disclosure of relevant information is ‘unprompted’ if the taxpayer made it at a time when the taxpayer had no reason to believe that the WRA had discovered, or was about to discover, the inaccuracy, the supply of false information or withholding of information, or the under-assessment or under-determination.
Disclosure of relevant information which is not unprompted is otherwise ‘prompted’ (under section 139(5) TCMA).
In relation to disclosure, ‘quality’ includes the timing, nature and extent of the disclosure (section 139(6) TCMA).
The ‘Reductions’ heading further below sets out the different levels of reduction the WRA may make to a penalty amount, depending on the quality of the disclosure and whether it was prompted or unprompted.
Reductions
As mentioned above, the WRA may at its discretion reduce the amount of a penalty depending on the quality of the taxpayer’s disclosure and whether it was prompted or unprompted. The amount by which the WRA may reduce the penalty will vary on a case by case basis.
The quality of disclosure revolves around the 3 core elements: ‘telling, helping and giving access’. These determine where the penalty will fall within the penalty range.
For:
- telling, the WRA may give up to 30%
- helping, the WRA may give up to 40%
- giving access to records, the WRA may give up to 30%
This adds up to 100% of the total possible reduction.
Examples
- Telling the WRA about, or agreeing that there is something wrong and how and why it happened.
- Telling the WRA about the extent of what is wrong as soon as the taxpayer knows about it.
- Telling and helping the WRA by answering questions in full.
- Helping the WRA to understand documents or information.
- Helping the WRA by replying to letters quickly.
- Helping the WRA by agreeing to attend any meetings, or visits at a mutually convenient time.
- Helping the WRA by checking records to identify the extent of the inaccuracy.
- Helping the WRA by using the taxpayer’s private records to identify sales or income not included in their tax return.
- Giving access to documents the WRA has asked for without unnecessary delay.
- Giving access to documents the WRA may not know about, as well as those that it asks to see.
There may be overlaps among the categories above. A single course of action may qualify for a reduction under more than one category.
TCMA/3130 Appeals and reviews of penalty decisions
Taxpayers have the right to request a review or appeal to the Tribunal in relation to any penalty issued by WRA.
If an appeal is made against the penalty or the WRA carries out a review of the penalty decision, recovery of the penalty amount is suspended until the appeal is determined or review is complete. See our guidance on reviews and appeals.
TCMA/3140 More than one penalty chargeable
In some circumstances, more than one penalty may be due to the WRA where a taxpayer has failed to comply with the obligations of the devolved tax legislation. In such circumstances, the WRA will determine whether each penalty is applicable on its own merits according to the facts. However, in determining the penalty amount where the amount is not fixed, the WRA will also consider the aggregate result of the combined penalties to ensure they are proportionate to the taxpayer’s circumstances, behaviour, and the amount of tax understated (or lost via an inflated statement of losses, claim for repayment or tax credit).