CIOT calls for more reform on tax penalties

Wednesday 20 May 2015

The Chartered Institute of Taxation (CIOT) has applauded the review of the tax penalties regime but says that more could be done to improve it further.

HM Revenue and Customs (HMRC) announced earlier this year that it would be holding a consultation on the way that it intends to develop its regime on tax penalties, for those who fail to meet their tax obligations. Among the groups that could be affected by these changes are limited companies, sole traders and umbrella company contractors.

CIOT published its response to the consultation on its website, saying that more effective use of digital resources to encourage compliance and improve clarity in communications between taxpayers and HMRC would be helpful for improving the penalties system.

The tax adviser also expressed its support for the idea of implementing a single penalty system as part of movement towards the creation of a single tax account for each taxpayer.

It also said that the review should look into whether or not the current regime operates fairly and proportionately and is operating properly.

CIOT believe that it is important HMRC understands that it needs to ensure people are properly educated on their tax obligations, as it says this is key to improving taxpayer compliance.

Tax policy director at CIOT Patrick Stevens 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 understands that changes to the penalties regime require careful sustained consideration to better reflect differing taxpayer circumstances.”

Mr Stevens said that this review was prompted by HMRC's digital strategy, which sees many of its services being moved online. Yet, he added that there is more to be considered where tax penalties are concerned, including whether the regime currently in place is fair and proportionate.

He 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.”

Mr Stevens said it is good that HMRC is using its digital resources to promote tax compliance, which it is doing by making it more personalised. This increased personalisation is possible because HMRC's digitisation gives it greater capability to look at individual taxpayers' information.

However, Mr Stevens says that HMRC can go further and use its digitally stored information to remind most taxpayers of their obligations and about what will happen if they do not comply in a way that is easy to understand and effective.

By Victoria McDonnell

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