When HM Revenue and Customs opened up the discussion on tax penalties and how best to apply them earlier in the year, those who were most likely to be affected were asked to come forwards with ideas, alongside various bodies, stakeholders and other interested parties. The goal was to ensure that the department’s move towards more digitised services would also incorporate a range of updates and changes which could make things easier for those who use the system as well as reducing the work involved in administering it.
The consultation closed in May, and the taxman has now had a chance to collate and review the responses, from which they have produced a summary of the main points. This has taken he form of five main principles that the department have been urged to consider when it comes to introducing any new regime as far as penalties are concerned. These include:
- That any system of penalties should be proportionate to the offence committed, and should be based on past behaviour as well as each individual incident.
- That the regime should be customer focussed and designed to encourage compliance and discourage non-compliance as opposed to focussing on raising revenue by the application of fines.
- That penalties should be applied in a way that is fair, ensuring that those who are usually compliant should not be penalised in the same way as those who are non-compliant.
- Penalties should be based on credible threats.
- Those using the system should be able to rely on it being consistent and standardised.
HMRC received a range of comments that focussed largely on the way the existing penalty system works, with specific attention paid to the fact that there are two main obligations on the part of tax payers – to file and pay on time, and to submit accurate information. There was some disagreement on the best way to issue penalties, with some believing that interest should be favoured over straight penalties. But there was overwhelming agreement on the fact that the system should be simple, flexible, proportionate and reflect whether or not the recipient of the penalty was deserving of whatever method was used.
First time offences were generally agreed to be of minimal concern, with many believing that penalties should not be applied in such situations, and that the overall compliance of any given individual should be taken into account before a penalty is applied. Suggested alternatives to penalties for first-time offenders include the issuing of a warning letter, whereas other ideas included staggering the due dates for returns and payment and refunding penalties for those who improve their compliance within a set time-frame.
HMRC have pledged to look at these options and engage in thorough testing of any changes before they are introduced on a permanent basis.
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