Nunn: HMRC penalties in the interest of fairness

Your professional bodies work very hard behind the scenes - years of time are spent annually, being the combined effect of all of the volunteer hours that professionals just like you devote to trying to improve the tax system, but it's quite often difficult, particularly when it comes to punitive HMRC penalties, says Yvette Nunn

It does feel like an uphill struggle at times, whilst HMRC have to try and recoup as much of the tax that is due and on time with as little cost to the taxpayer, lest we have a system that costs what it collects, and no-one pays for the hospitals (reference of course to HMRC letters that some taxpayers have received that suggest if you are not paying what you owe, the hospitals suffer.)

I make no secret of the fact that for HMRC to collect what is owed, when it is due, the heavy hand of the penalty regime that kicks in at the very moment a taxpayer fails to comply, for whatever, reason can be very unfair, and it is in many instances wholly uncommercial especially for businesses. HMRC’s Consultation Document on penalties is very welcome news indeed.

Consultation documents are open to all to see and comment, so if you would like to have your say on penalties, please go to www.gov.uk/government/consultations/hmrc-penalties-a-discussion-document, the deadline for comments being 12pm on 11 May 2015.

It really is important and fair for all taxpayers, large and small, to pay what is due, but when that is not possible, the system must allow for exceptions. It must also allow for the accidental defaulters, and only ‘penalise the deliberate and persistent defaults’, to quote many a director of HMRC.

I was fortunate enough to be invited to meet with HMRC on the consultation document, as well as attend their Penalties Workshop.

HMRC acknowledged that the current system is not particularly fair and neither proportional, particularly when it comes to VAT, and the automated/behavioural penalties are not driving change.

Behavioural penalties were not designed for a digital system so they acknowledge that the system has to change. Moving forward, and after an unusually lengthy consultation process mostly thanks to the timing of the general election, HMRC are keen that a new digital service will promote good compliance while preventing non-compliance, and a natural consequence will be fewer errors and fewer taxpayer defaults, though this will mainly benefit individuals and the issue of unfair and disproportional penalties charged to business still needs to be addressed.

The five principles that HMRC want to see in a new system are:

  • Customer focused to promote compliance and should not be designed to generate revenue
  • Penalties proportionate to the ‘offence’ which may consider past behaviour
  • Compliant taxpayers are seen to be in a better position than non-compliant taxpayers so the penalty must be applied fairly
  • A penalty which is a credible threat, and of sufficient size to warrant pursuing it. (Should this be viewed as an early indication of the end of the £100 late filing penalty in favour of something larger even though HMRC admits that it does prompt most taxpayers to comply in a timely manner, or could it spell the end of the relatively small tax geared penalties for careless inaccuracies?)
  • A consistent and standardised approach

From our meetings and the workshop HMRC were left with no doubt that we need and we fully support a change - but within that change we need to see fairness, consistency across all taxes, and a system that takes into account the taxpayer’s circumstances. In addition, an uncharacterised failure by an otherwise compliant taxpayer should not warrant a penalty; there should be leniency on a taxpayer entering a new regime for the first time, and take on board their behaviour overall.

About the author

Yvette Nunn is director of Berkeley Associates

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