ACCA Advanced Taxation (ATX) Practice Exam

What happens if the client fails to report to HMRC regarding tax owed?

1. They are penalized but can appeal

2. HMRC will charge interest on the unpaid tax

3. The client can avoid charge if they pay promptly

4. No actions are taken by HMRC

The correct answer is: HMRC will charge interest on the unpaid tax

When a client fails to report tax owed to HMRC, one of the immediate consequences is that HMRC will charge interest on the unpaid tax. This is an established procedure that aims to encourage timely tax payments. Interest is calculated on the amount of tax owed from the date it was due until it is paid. This process underscores HMRC's position that tax obligations must be fulfilled punctually and creates an additional financial incentive for clients to ensure that they meet their tax responsibilities. In contrast, while the possibility of penalties exists and appeals can be made (as noted in one of the other choices), the primary and certain consequence of failing to report tax owed is the accumulation of interest. This system is designed to mitigate the risk of non-compliance by imposing financial repercussions for late payment. Additionally, the suggestion that the client could avoid charges by paying promptly does not reflect the reality of the situation where interest applies to amounts not reported and paid on time. Lastly, the notion that no actions are taken by HMRC in case of non-reporting is incorrect, as the organization actively enforces tax compliance through various measures, including interest charges and penalties.