CIOT’s comments were made in response to HMRC Penalties: a Discussion Document, which HMRC said was intended to encourage broad discussion around the ways in which the introduction of the personal digital tax account could be used to vary the current penalty regime. It was open for comments until 11 May.

Patrick Stevens, CIOT tax policy director, said: ‘After having been involved with the HMRC Powers Review which ran from 2005 to 2012, we are encouraged that this document represents a high level review with further consultation in due course. This demonstrates that HMRC understand that changes to the penalties regime require careful sustained consideration to better reflect differing taxpayer circumstances.’

Options outlined in the document included moving away from applying penalties on a tax-by-tax basis, and towards a penalty system s based on the taxpayer’s overall position and behaviour. Suggestions include introducing a points system, similar to traffic offences, and distinguishing between simple mistakes by someone who is usually tax compliant and deliberate actions.

In its feedback, CIOT said it supported the principle of a single penalty system as part of the move to a single tax account for every taxpayer, but called for further reform. The institute said there needed to be a review to consider whether the current regime is ‘fair and proportionate’, and operating properly.

Stevens said: ‘Indeed, there is a strong case for review of the proportionality of the automated late filing and late payment penalties; how the Revenue establishes the behaviour that has led to errors and how it determines the appropriate level of penalty.’  

Stevens also called on HMR C to go further with proposals to adopt a more a more personalised approach as they increase their ability to analyse taxpayer information, stating: . ‘Digital data in HMRC’s possession should be used to remind the vast majority of taxpayers of their obligations and of the consequences of non-compliance in a comprehensible and effective manner.’

AAT also supports a review of the penalty regime, warning that in certain instances automated penalties can catch some taxpayers unaware. The association said it is unreasonable to expect ordinary tradesmen to keep up to date with all aspects of the UK’s complex tax law and as a result there might be times where people become exposed to a penalty through ignorance.

As part of its response submission AAT recommended that HMRC be given greater discretion to waive penalties where a genuine reason exists for missing a deadline, or wider use of suspended penalties. It suggested introducing incentives similar to those offered by utility companies such as a discount for payment by a certain date.

It also suggested that more enquiry casework could be settled by online offers accompanied by a full report to justify decisions on adjustments and penalty levels.

HMRC Penalties: a Discussion Document is available here