Tax campaigners have welcomed HM Revenue & Customs’ (HMRC) move to open up a debate about tax penalties.
In a discussion document issued on 2 February, HMRC raised the issue of how penalty regimes are applied when people failed to comply with their tax obligations.
It said it wanted to differentiate between “deliberate and persistent non-compliers” and people who make an occasional error, for which responses other than penalties are appropriate.
Anthony Thomas, chair of the Low Incomes Tax Reform Group, part of the Chartered Institute of Taxation, said: “In the last year in particular, we have been drawing HMRC’s attention to cases in which the bluntness, inflexibility and disproportionate effect of their penalty regimes are plain to see.
“For example, failure to file a self-assessment return can lead to penalties of £1,600 or more over the course of a year, even where no tax is due. Exactly the same regime applies to the deliberate defaulter as to the previously compliant taxpayer who has slipped up for the first time, perhaps because they have fallen ill. That cannot be right.
“The system needs to distinguish between the honest majority who want to get their tax right and the dishonest minority who are out to cheat the system.
“We are keen to work with HMRC towards a fairer and more just penalties regime. Maybe the answer lies in making better use of powers already in the legislation, such as to accept a taxpayer’s reasonable excuse for defaulting or to recognise special circumstances as qualifying for a reduction or remission of a penalty. This would involve giving HMRC officials more discretion within a wider and more flexible, but still clearly defined, set of parameters.
“Whatever the answer turns out to be, the cases we have seen point clearly to the need for reform, and HMRC are to be commended for setting out on that road.”
HMRC is inviting views on the discussion document, which can be seen here, by 11 May.
Moore Thompson can provide expert advice on all aspects of tax, from assistance with completing and filing self assessment tax returns to tailored planning measures to maximise tax efficiency. For more information, please contact us.