London, September 2025: A Freedom of Information (FOI) request submitted by Financial Software Ltd (FSL) has discovered Failure to Notify penalties issued by HM Revenue & Customs for capital gains tax (CGT) have doubled over the past two years.
The rise in penalties comes after the annual exemption amount (AEA) was reduced over two tax years from £12,300 to £3,000. The AEA was cut to £6,000 in 2023-24 and to £3,000 in 2024-25.
The table below shows the number of Failure to Notify penalties issued by HMRC in each of the past five tax years. Figures relate to the year the penalty was issued, not necessarily the year in which the taxpayer made their error:
| Tax year penalty was issued | 2020-21 | 2021-22 | 2022-23 | 2023-24 | 2024-25 |
| Number of penalties issued | 175 | 175 | 165 | 254 | 350 |
A Failure to Notify penalty may occur for a number of reasons. Namely, if clients do not tell HMRC by the appropriate deadline that:
- they have sold an asset and need to make an appropriate capital gains payment
- their circumstances have changed in a way that affects their tax position
- their company is liable for Corporation Tax
- they are liable to tax because their new business has made a profit
- their business turnover has reached the VAT registration threshold
- they have started a type of business that must register with HMRC (for example a business that will charge excise duty)
The penalty is calculated on potential lost revenue, which is based on the amount of tax that is unpaid as a result of the Failure to Notify. However, HMRC may reduce the penalty when they are told about the failure. Further reductions may then be made depending on the quality of disclosure.
HMRC uses the National Penalty Processing System (NPPS) to record certain types of penalty information, including Failure to Notify penalties. The NPPS is not used across all areas of HMRC and is not used to record all penalties charged by HMRC across all compliance or wider activities. As not all penalties are required to be recorded on the NPPS, these figures should not be considered a complete HMRC picture.
FSL’s thoughts on the Failure to Notify data
Michael Edwards, Managing Director at FSL, said: “People are seeing bigger fines and interest penalties as HMRC looks to boost the UK’s coffers after fresh impetus from the Chancellor of the Exchequer Rachel Reeves. She has committed to funding more investigations on ‘missing’ tax receipts, aiming to pull in an additional £5.1bn a year by 2029.
“With CGT Failure to Notify penalties doubling over the last couple of years, clients will need their advisers more than ever to be on top of their investment tax situation, as well as potential CGT charges that may occur outside of their investment portfolios.”
Alex Ranahan, Tax Reporting Analyst at FSL, added: “To me, it seems simply unbelievable that only 165 Failure to Notify penalties were issued in 2022-23. Similarly, it’s astonishing that just 350 taxpayers, failed to notify HMRC that they were subject to CGT over the last year. These figures are most likely the tip of the iceberg.
“We know from the Public Accounts Select Committee that HMRC does not know how many billionaires pay tax in the UK. We also know from the consultations issued around third-party data, that HMRC struggles to identify investment income and gains, while the National Audit Office has identified serious issues with HMRC’s ability to effectively tax the most wealthy. Almost half of complex high-value cases were closed in 2023-24 with no yield and just 25 prosecutions made.
“With the annual exempt amount being decreased to £3,000 and therefore bringing more people into scope for CGT, we expect a corresponding and more substantial rise in penalties issued for failure to notify. Taxpayers should be aware of their responsibilities and HMRC should be doing everything they can to make people aware of their possible liabilities in order to avoid costly enquiries and penalties later on.”
ENDS
About Financial Software Ltd (FSL)
FSL provides market-leading solutions and services that simplify the process of tax management, analysis and reporting. Its flagship product, CGiX, is trusted by leading members of the wealth and investment community in the UK, US and Ireland to accurately calculate their clients’ taxable wealth.
In addition to CGiX, FSL offers a comprehensive database of corporate actions that supports the calculation and reporting of excess reportable income (ERI), as well as tax consultancy services, tax administration outsourcing services, and tailored tax training.
FSL is part of Industrial Thought Ltd group, a group of businesses specialising in investment taxation, financial data, and related consultancy services.