HMRC calls for views on penalties

Thursday 5 February 2015

HM Revenue and Customs (HMRC) is calling on taxpayers, including umbrella company contractors, sole traders and limited company contractors, to talk about how it can improve the way that it applies penalties to people who fail to pay or who miss payment deadlines.

It has released a discussion document that is asking for views to be sent in by May 11th. HMRC says that it has asked for views as it is changing so that it can deliver more digital services with its customers in mind.

The tax authority says that it aims to create a system that is appropriate for the modern, digital world and that it wants to make sure its approach to penalties is in line with both technology and behavioural science.

One of the things HMRC is considering is how it should differentiate between people who occasionally make mistakes when it comes to tax payment and those that deliberately fail to pay and to meet deadlines. HMRC is considering if there are any other ways to deal with these different cases that might be appropriate.

In the discussion document, HMRC said: "We know that the vast majority of customers meet their obligations in full and on time, and that penalties are only applied to a small minority of people and businesses. We want to make sure our approach works as well as possible. This is why we want to consider whether we could better differentiate between deliberate and persistent non-compliers and those who might make an occasional error for whom alternative interventions are more appropriate."

HMRC says that it wants to make the most of the opportunities that can be gained from the technology available. It says that as it is changing the way it operates, the way that penalties are applied needs to be changed. Through the discussion document, it wants to try to work out ways of doing this with the influence of individuals and businesses.

Chairman of the Low Incomes Tax Reform Group (LITRG) Anthony Thomas commented that he thinks it is correct that HMRC is launching a debate on its penalties system.

He said: "While some penalties may target and deter deliberate defaulters, they also catch the vulnerable, making their interactions with the tax system even more difficult than they need to be."

LITRG has been pointing out situations to HMRC where bluntness, inflexibility and disproportionate effects of its penalties system have been apparent.

An example of this, LITRG found, is that when people fail to file their self-assessment return then they could end up with a penalty of £1,600 or higher over the course of a year, even when there is no tax due. This system applies to both people who have made mistakes for the first time and were previously compliant as well as those who default on tax payments deliberately.

LITRG says that it hopes to work with HMRC to develop a fairer penalties regime and suggested that the answer could be within the powers that are already available through legislation, such as being able to recognise special circumstances that could allow a penalty to be reduced or taken away.

By Victoria McDonnell

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