Penalty for Not Reporting Understated Tax Liability to WRA

Penalty for not telling the WRA about an assessment that is too low

If the Welsh Revenue Authority (WRA) issues an assessment or determination that understates the tax due, a taxpayer may be penalised if they do not take reasonable steps to tell the WRA within 30 days. The rule focuses on what the taxpayer knew, or should reasonably have known, after receiving the document, not simply on the WRA’s original mistake.

• The penalty only applies if the WRA issued an assessment or determination, it was too low, and the taxpayer failed to notify the WRA within 30 days.
• The WRA must consider whether the taxpayer knew, or ought to have known, that the amount shown was too low.
• The maximum penalty is 30% of the potential lost revenue.
• What counts as reasonable steps depends on the facts, including how obvious the error was and what information the taxpayer had.
• The WRA normally has 12 months to assess and notify the penalty, starting from the correction of the understatement or the end of any related appeal period.
• The correction of the tax position and the penalty for failing to notify are separate issues, and the WRA may issue a supplementary penalty assessment if the lost revenue was first underestimated.

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Penalty for not telling the WRA about an assessment or determination that is too low

This page explains a specific penalty in the Welsh tax system. It applies where the Welsh Revenue Authority (WRA) issues an assessment or determination that understates the tax due, and the taxpayer does not take reasonable steps to tell the WRA within 30 days. The rule matters because a taxpayer cannot simply rely on an official figure if they know, or ought to know, that it is wrong.

What this rule is about

Normally, a taxpayer may assume that a tax authority’s formal assessment or determination is correct. This rule creates an important exception. If the WRA issues a determination or assessment that is too low, and the taxpayer realises this, the taxpayer may have a duty to alert the WRA.

The penalty is aimed at cases where tax has been understated and the taxpayer fails to act. It is not triggered just because the WRA made the original mistake. The focus is on what the taxpayer did, or failed to do, after receiving the document.

What the official source says

The source says that a taxpayer is liable to a penalty if all of the following apply:

• the WRA issues a determination or assessment,
• that determination or assessment understates the taxpayer’s liability, and
• the taxpayer fails to take reasonable steps to notify the WRA of the understatement within 30 days from the date the determination or assessment was issued.

The maximum penalty is 30% of the potential lost revenue.

In deciding whether the taxpayer took reasonable steps, the WRA must consider whether the taxpayer knew, or should have known, that the determination or assessment was too low.

The WRA must assess the penalty and notify the taxpayer within a time limit. Broadly, that time limit is 12 months beginning with:

• the end of the appeal period for the decision that corrects the understatement or inaccuracy, or
• if there is no such WRA assessment, the date when the understatement or inaccuracy is corrected.

The source also says that the WRA may make a supplementary penalty assessment if an earlier penalty assessment was based on an underestimate of the potential lost revenue, provided the relevant time limit is met.

What this means in practice

If you receive a WRA assessment or determination that appears to understate the tax due, you should not assume the matter ends there. If you know, or a reasonable person in your position should know, that the amount is too low, there may be a duty to tell the WRA within 30 days.

This means the rule is concerned with behaviour after the document is issued. The practical question is not only whether the WRA got the figure wrong, but whether the taxpayer responded reasonably once the error was apparent.

The phrase “reasonable steps” is important. The source does not prescribe one fixed method. In practice, what is reasonable is likely to depend on the facts, including what information the taxpayer had, how obvious the understatement was, and whether the taxpayer could realistically identify the error.

The reference to what the taxpayer “knew, or should have known” means actual knowledge is not the only test. A taxpayer may still face a penalty if the error was sufficiently obvious that they ought to have recognised it.

How to analyse it

A sensible way to approach this rule is to work through the following questions:

• Was there a WRA determination or assessment?
• Did it understate the true tax liability?
• When was it issued?
• Did the taxpayer take steps to notify the WRA within 30 days of that issue date?
• If not, were there nevertheless reasonable steps taken in the circumstances?
• What did the taxpayer actually know at the time?
• What should the taxpayer reasonably have known from the information available?
• What is the potential lost revenue, since that affects the maximum penalty?

It is also important to separate two issues:

• correcting the underlying tax position, and
• assessing the penalty for failing to notify.

The time limit for the penalty is linked to the correction of the understatement. The WRA has 12 months from the relevant starting point to assess and notify the penalty. That starting point depends on whether there is a WRA decision correcting the position and, if so, when the appeal period for that decision ends.

The appeal period includes both:

• the period during which an appeal could be brought, and
• if an appeal has been brought, the period until that appeal is finally determined or withdrawn.

So, where the correction is itself disputed, the penalty time limit may not begin until the appeal process has ended.

Example

Illustration: the WRA issues an assessment showing a lower amount of tax than the taxpayer expected based on the transaction documents. The taxpayer reviews the assessment, sees that a chargeable amount appears to have been omitted, but does nothing. If the taxpayer knew, or should reasonably have realised, that the assessment was too low, and did not take reasonable steps to notify the WRA within 30 days, this penalty may apply.

If the understatement is later corrected, the WRA may then assess a penalty, subject to the statutory time limit. If the initial penalty assessment was based on too low a figure for potential lost revenue, the WRA may be able to issue a supplementary assessment within the permitted period.

Why this can be difficult in practice

The hardest issue is often whether the taxpayer knew, or should have known, that the assessment or determination was wrong. That is a fact-sensitive question. Some understatements will be obvious from the face of the transaction or return. Others may depend on technical points that a taxpayer would not reasonably spot.

Another difficulty is the meaning of “reasonable steps”. The source confirms that the WRA must consider the taxpayer’s knowledge, but it does not set out a detailed checklist for what counts as enough. In practice, this leaves room for argument about whether the taxpayer’s response was adequate.

There may also be timing issues. The 30-day notification period runs from the date the determination or assessment was issued. The penalty assessment time limit, however, runs from the correction of the understatement or from the end of the relevant appeal period. Those are different dates and should not be confused.

Key takeaways

• A penalty can arise if the WRA issues a tax figure that is too low and the taxpayer does not take reasonable steps to notify the WRA within 30 days.
• The taxpayer’s knowledge matters: the WRA must consider what the taxpayer knew, or should reasonably have known, about the understatement.
• The penalty is capped at 30% of the potential lost revenue, and the WRA must assess it within the statutory 12-month time limit.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Penalty for Not Reporting Understated Tax Liability to WRA

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