The CIOT, ATT and LITRG have all welcomed a comprehensive HMRC review on tax penalties. They have each submitted responses to HMRC penalties: a discussion document published on 2 February 2015, which called for comments by 11 May.
CIOT tax policy director, Patrick Stevens, commented: ‘HMRC’s digital strategy has prompted this review. However, there are wider concerns about whether the current penalty regime is fair and proportionate. 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… 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.’
LITRG has also encouraged HMRC to ensure that its penalties system better recognises the difference between occasional error and deliberate non-compliance. Currently the automated self-assessment penalty regime in particular, in which a taxpayer who makes a genuine mistake is penalised as heavily as one persistently delaying their return or paying what they owe.
LITRG’s nine recommendations include making better use of existing safeguards, as well as adjusting processes so that the likelihood of taxpayer error, and hence the need for penalties, is reduced.
Anthony Thomas, chairman of LITRG, said: ‘The review of HMRC powers that took place between 2005 and 2009 drew the important distinction between failure to take reasonable care, which attracted a penalty, and innocent error despite taking reasonable care, which did not. It also made clear the different standards of “reasonable care” expected from, say, a tax adviser or accountant than from an individual with no experience of the tax system and/or poor literacy or numeracy skills…Unfortunately the automated self-assessment penalty regime for late filing and late payment has lost sight of both of those principles…nobody should experience an inferior service from HMRC if they lack access to, or are not competent in using, online services.’
ATT is calling for a more efficient use of suspended penalties to encourage long-term compliance and how the various penalty regimes can be improved. ATT has highlighted that uncharacteristic and genuine mistakes require a very different response from persistent failure.
ATT president, Natalie Miller, said: ‘We have made over 20 recommendations and suggestions – from bringing VAT default surcharges into line with other late payments regimes to considering the possible merits of tax awareness courses in place of monetary penalties – and we have emphasised the need for transparency and consistency in the application of penalties.
‘A central theme of our response is the role of suspended penalties. These were introduced six years ago but there is scant information available about how widely they are used and there is some evidence that suspension is not considered where it should be.
‘The purpose of suspending a penalty is to incentivise the taxpayer to become compliant. If doing so is more likely to encourage long-term compliance than collecting a penalty (which may cause resentment of the tax system), it makes sense to use that suspension facility more.
‘We are sure that if our ideas and those of everyone else who responds to this opening consultation are taken into account, there is a real chance to develop an overall approach to penalties that is coherent, practical, cost-effective and capable of delivering greater compliance.’
The CIOT, ATT and LITRG have all welcomed a comprehensive HMRC review on tax penalties. They have each submitted responses to HMRC penalties: a discussion document published on 2 February 2015, which called for comments by 11 May.
CIOT tax policy director, Patrick Stevens, commented: ‘HMRC’s digital strategy has prompted this review. However, there are wider concerns about whether the current penalty regime is fair and proportionate. 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… 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.’
LITRG has also encouraged HMRC to ensure that its penalties system better recognises the difference between occasional error and deliberate non-compliance. Currently the automated self-assessment penalty regime in particular, in which a taxpayer who makes a genuine mistake is penalised as heavily as one persistently delaying their return or paying what they owe.
LITRG’s nine recommendations include making better use of existing safeguards, as well as adjusting processes so that the likelihood of taxpayer error, and hence the need for penalties, is reduced.
Anthony Thomas, chairman of LITRG, said: ‘The review of HMRC powers that took place between 2005 and 2009 drew the important distinction between failure to take reasonable care, which attracted a penalty, and innocent error despite taking reasonable care, which did not. It also made clear the different standards of “reasonable care” expected from, say, a tax adviser or accountant than from an individual with no experience of the tax system and/or poor literacy or numeracy skills…Unfortunately the automated self-assessment penalty regime for late filing and late payment has lost sight of both of those principles…nobody should experience an inferior service from HMRC if they lack access to, or are not competent in using, online services.’
ATT is calling for a more efficient use of suspended penalties to encourage long-term compliance and how the various penalty regimes can be improved. ATT has highlighted that uncharacteristic and genuine mistakes require a very different response from persistent failure.
ATT president, Natalie Miller, said: ‘We have made over 20 recommendations and suggestions – from bringing VAT default surcharges into line with other late payments regimes to considering the possible merits of tax awareness courses in place of monetary penalties – and we have emphasised the need for transparency and consistency in the application of penalties.
‘A central theme of our response is the role of suspended penalties. These were introduced six years ago but there is scant information available about how widely they are used and there is some evidence that suspension is not considered where it should be.
‘The purpose of suspending a penalty is to incentivise the taxpayer to become compliant. If doing so is more likely to encourage long-term compliance than collecting a penalty (which may cause resentment of the tax system), it makes sense to use that suspension facility more.
‘We are sure that if our ideas and those of everyone else who responds to this opening consultation are taken into account, there is a real chance to develop an overall approach to penalties that is coherent, practical, cost-effective and capable of delivering greater compliance.’
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