HMRC reminded of penalty rules at tribunal

In the recent case of GN Khan v HMRC, HMRC opened an enquiry into Mr Khan’s affairs on 2 January 2014 as they suspected he had failed to notify a liability to tax in respect of a property portfolio he owned. 

The taxpayer responded to state that he had already made an unprompted disclosure prior to receiving any correspondence from HMRC, by contacting the voluntary disclosure helpline and posting an associated letter to HMRC on 11 December 2013. Whilst no record of the call was found by HMRC, a copy of the letter was presented at the tribunal, addressed to the Let Property Campaign Team to inform them that he would like to ‘come on the Let Property Campaign’.  

HMRC tried to contend that this letter was insufficient to constitute a disclosure, as the appellant was required to provide full details of the rental properties, the amount of the rent, the dates of the tenancies and so on, for it to be treated as such.  

The tribunal found that Mr Khan’s letter of 11 December 2013 constituted a disclosure to HMRC of his failure to notify a liability to tax in respect of the property portfolio, and that it was given before HMRC contacted him on 2 January 2014. 

The judge stated that the relevant unprompted disclosure is that of the failure to notify a liability to tax, rather than the underlying details and quantification of the liability.

In Mr Khan’s case, the conclusion that the disclosure was unprompted had a minimal impact on the penalties due; reducing it from 64.75% penalty to a 62.5% penalty (as it was found that he had deliberately failed to notify a liability to tax). However, in a lot of circumstances, an unprompted disclosure can significantly reduce or eliminate any liability to a penalty. 

This case is a reminder to taxpayers (and their agents) that, whilst it may not be necessary to provide the full facts at the point of initiating a disclosure, it is important to highlight the relevant act or failure in point to preserve the unprompted status. That might be the submission of an incorrect tax return or, as in Mr Khan’s case, the failure to notify HMRC of a liability to tax. 

For many, it may be clear that Mr Khan had taken sufficient steps to tell HMRC that he was going to disclose previously undeclared rental income, and that should serve as a perfect reminder not to simply accept that the position HMRC takes is always correct.