Trust registration service penalties announced

HMRC has now published the penalties for late filing on the trust registration service (TRS). 

HMRC’s announcement

The full text of HMRC’s announcement is as below: 

“On 8 December 2017, HMRC announced that while the 31 January 2018 deadline for making a Trust Registration Service (TRS) return would remain in place we would not charge a penalty if trustees, or an agent acting on behalf of the trustee, failed to register their trust on the TRS before 31 January 2018 but no later than 5 March 2018. 

“HMRC will not automatically charge penalties for late TRS returns. Instead we will take a pragmatic and risk based approach to charging penalties, particularly where it is clear that trustees or their agents have made every reasonable effort to meet their obligations under the regulations. We will also take into account that this is the first year in which trustees and agents have had to meet the registration obligations. 

“While our information suggests that most TRS returns have been filed, if you have not yet completed your TRS registration(s), you should do so as soon as possible. 

When penalties can be issued

Penalties can be charged for administrative offences relating to a relevant requirement.

These are: 

  • a requirement to register using the TRS by the due date of 31 January after the end of the tax year in which the trustees pay tax on trust assets or income and
  • a requirement to notify any change of information by the due date of 31 January after the end of the tax year in which the trustees pay tax on trust assets or income. 

The administrative offences penalty

HMRC will charge a fixed penalty to reflect the period of delay: 

  • Registration made up to three months from the due date – £100 penalty
  • Registration made three to six months after the due date – £200 penalty
  • Registration more than six months late – either 5% of the tax liability or £300 penalty, whichever is the greater sum. 

“There is currently no facility to notify HMRC of any change of information online and, as such, we will not charge penalties for a contravention of this requirement until the online function is available. 

“A penalty will not be payable if we are satisfied you took reasonable steps to comply with the regulations

“HMRC also has the power to apply a penalty for money laundering offences under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017/692. 

“These offences are more serious than administrative offences. HMRC will not bring these penalties in immediately. HMRC will consult on the structure of these penalties later this year, to ensure the penalty regime is fair and proportionate whist cracking down on money laundering offences.” 

Basis for the penalties

The regulations introducing the trustees’ obligations to provide information, fulfilled by completing the TRS, also give the authority to charge civil penalties for non-compliance. The £100 and £200 penalties are in line with penalties for tax returns required by HMRC but as the TRS is not a tax filing requirement, it is a money laundering measure, it was not necessary to follow the tax penalty regime. 

The penalty of 5% of the tax payable for registrations more than six months late is puzzling as no tax liability is triggered by the TRS. HMRC has advised that it will be 5% of whatever tax liability triggered the requirement to complete or update the TRS; so it could be income tax, capital gains tax, stamp duty land tax, inheritance tax, etc. 

The announcement says that HMRC will not charge penalties automatically. When a self assessment is not filed on time the penalty is issued automatically if the return is not filed by 31 January, but as no notices have been issued to register trusts there can be no automatic penalty for not filing. HMRC will be able to issue penalties for late filing to those trustees who do file late, but it will be more difficult for them to identify trusts not filed at all in order to issue a penalty. 

As HMRC says that “a penalty will not be payable if we are satisfied you took reasonable steps to comply with the regulations”, any trustee or agent filing late would be well advised to keep a note of the steps taken to file on time. 

We asked HMRC if an extension would be available due to the inclement weather last week (the week ended 4 March) as in our view the weather would be a reasonable excuse for late filing. Indeed, HMRC announced that in relation to its own services, many offices were shut or at best operating on reduced staffing levels. By giving an extension, a measure done in the past for the 31 January deadline when there were exceptional circumstances leading up to it such as the floods in Cumbria, it would save time and effort for HMRC and agents. HMRC has not taken this approach but in response has provided us with the detailed communication about penalties reproduced above.