HMRC’s £5,000 penalty fine for trustees

HMRC has recently published new guidance, focusing on the penalties that may be charged on trustees who fail to meet their trust registration service (TRS) obligations, which could give rise to concerns for many trustees across the country.

The threat of potential penalties may have passed many trustees by, given the limited publicity surrounding their introduction, details of which were originally included within HMRC’s TRS manual back in May 2021. The manual was updated in 2022 to include details of increased fixed penalties of £5,000, which can be levied on trustees for failing to register on time or for failing to ensure the trust details held by HMRC are correct and up to date. The intention behind these fixed penalties is presumably to provide an incentive for trustees to comply with the new legislation. The threat of a £5,000 fine should, in theory, be sufficient to deter trustees from ignoring their obligations to submit timely and correct information to HMRC. However, a fixed penalty of this magnitude sounds alarming, especially when considering how much higher it is than comparable tax compliance related penalties; for example, the £100 late filing penalty for self-assessment tax returns.

Under the TRS regime, new taxable trusts must be registered within 90 days of creation (previously, trusts created before 6 April 2021 would generally have been required to notify HMRC of their taxable status by 5 October or 31 January following the end of the tax year in which the trust first had a liability to UK tax). Trustees of taxable trusts are also now obliged to update the TRS, as appropriate, and declare that the details held within the TRS are up to date on an annual basis in the trust’s self-assessment tax return.

More recently, the scope of the TRS legislation has been extended to include a wider range of non-taxable express trusts in existence on or after 6 October 2020. The deadline for the registration of these trusts was 1 September 2022, or within 90 days of creation if later. To avoid penalties, all new in-scope non-taxable express trusts must be registered within 90 days of creation, and reportable changes to such trusts must also be updated on the TRS within 90 days.

However, are these penalties likely to ever be issued? HMRC has had the ability to charge them for some time, but there is little evidence of any penalty notices having been issued. This has perhaps lured trustees into a false sense of security. HMRC’s new guidance indicates that it is intending to start charging penalties to trustees who either do not register a trust on the TRS, or do not ensure that its details are updated, or confirmed to be correct, by the appropriate deadline.

So how is this likely to work in practice? Under its own guidance, for HMRC to levy such a penalty, it must firstly send a penalty letter to the trustees, stating that it has become aware that they have either not registered an applicable trust, or that a trust’s relevant details are not up to date on the TRS. In this letter, HMRC will outline what actions the trustees need to take and set a deadline for these actions to be completed.

If the trustees take no action within the given timeframe, HMRC can charge a fixed penalty of £5,000. A penalty may also be levied in circumstances where HMRC has reasonable belief the original failure to comply with the TRS guidance was deliberate.

Given the anticipated steps required by HMRC, it is likely that only a small number of trustees would be hit with these significant fixed penalties. That said, now the original registration deadline has passed, it would be prudent for trustees of any pre-existing or new trusts to be conscious of HMRC’s increased focus on this area. Checking that the required details have been submitted on the TRS, and are up to date, may prove to be a fruitful exercise, potentially saving £5,000 and avoiding unwanted attention from HMRC.