Concerns have been expressed before about the way that fixed penalties for failures to make a return can operate unfairly, particularly where there is no loss of tax to the government. But HMRC’s recent annual report highlights another issue: are these penalties, however unfair they may be, actually collectable?
The report shows that £28m of penalties for self-assessment and VAT were written off because the liabilities were ‘not cost effective to pursue on a value for money basis’. That £28m related to no fewer than 54,186 cases which is an average of about £500 each. That is just the cash cost, which doesn’t include the resources used within HMRC to first impose these penalties, and then try to collect them. There was also a further write off of £23m relating to another 25,431 cases where no tax returns had been filed for at least three years. These must be cases where the taxpayers had no need to file because they had no untaxed income.
So that is nearly 80,000 cases where low value penalties were not collected, which suggests we really do need a root and branch review of the way that these penalties operate. Almost everybody would agree that people who have deliberately fiddled their taxes should be hit with large penalties, but it seems to be a waste of everybody’s time – to say nothing of the heartache involved for those caught up in the system – trying and failing to penalise people who have not deprived the state of any tax revenues.
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Are fixed penalties actually collectable by HMRC?
Concerns have been expressed before about the way that fixed penalties for failures to make a return can operate unfairly, particularly where there is no loss of tax to the government. But HMRC’s recent annual report highlights another issue: are these penalties, however unfair they may be, actually collectable?
The report shows that £28m of penalties for self-assessment and VAT were written off because the liabilities were ‘not cost effective to pursue on a value for money basis’. That £28m related to no fewer than 54,186 cases which is an average of about £500 each. That is just the cash cost, which doesn’t include the resources used within HMRC to first impose these penalties, and then try to collect them. There was also a further write off of £23m relating to another 25,431 cases where no tax returns had been filed for at least three years. These must be cases where the taxpayers had no need to file because they had no untaxed income.
So that is nearly 80,000 cases where low value penalties were not collected, which suggests we really do need a root and branch review of the way that these penalties operate. Almost everybody would agree that people who have deliberately fiddled their taxes should be hit with large penalties, but it seems to be a waste of everybody’s time – to say nothing of the heartache involved for those caught up in the system – trying and failing to penalise people who have not deprived the state of any tax revenues.
