In a recent document inviting views and comments by 11 May 2015, the Revenue ask taxpayers and agents what they think about ideas they are having on potential changes to the penalty regime, introduced under the HMRC Powers Review 2005-2012.
As HMRC become more digitally savvy, in an attempt to help taxpayers get more things right first time, they are inviting comments on how tax penalties are to be applied, if the nature of the punishment should fit the nature of the crime and the deterrent effect of the severity or size of the penalty. Are warnings followed by financial pain a better option in keeping the majority of taxpayers on-side?
It’s unclear whether HMRC’s penalties are more useful in showing the compliant majority that the tardy minority don’t get away scot free, or as an incentive to the majority to pull their finger out. It’s the principle, not the money, say HMRC.
HMRC’s master plan is to promote good compliance by giving explanations and information; prevent mistakes early by identifying risks and correcting errors; and respond in a tailored manner using better data. This entire compliance strategy is based upon their successful transition into a digital services provider maintaining accurate and up to date records of their ‘customers’’ tax affairs.
In an organisation as large and complex as HMRC, that digital conversion cannot be taken for granted. Remember the introduction of RTI? The penalty regime had to be continually delayed by because the Government’s reporting systems were unprepared and unsuitable for meeting their own deadlines. I don’t recall them imposing a penalty on themselves however!
That said, there is much that is sensible in a discussion of high level issues. The implication is that the highest penalties should apply to deliberate cases of evasion or avoidance and should increase based on the scale of tax lost and in cases of persistent or recurring offences. Deliberate and concealed mistakes should attract the biggest punishments whilst simply being careless does not necessarily incur a penalty.
There is clear intention in the words to not portray penalties as a means of collecting revenue. They have far greater value in acting as a deterrent in the face of abuse and I am happy to support a tax regime which protects the vulnerable taxpayers from forgetfulness, careless mistake and aberration and at the same time heavily punishes deliberate or persistent delay in the provision of required information.
If this sentiment translates into an environment where HMRC use their ever growing digital prowess to warn taxpayers in advance that they are about to miss a filing deadline, have just missed one or need to act before they receive an automated penalty then HMRC may be able to have their cake and eat it by driving up compliance and timely filing without having to issue and administer thousands of fixed penalties for small amounts that are difficult to collect or in some cases justify.
If HMRC are truly exploring a digitalised customer service approach to dealing with taxpayers, that genuinely helps us understand our obligations, merges all taxes, payments and compliance into a single enjoyable experience for all, and is one which accepts that on occasion humans forget or just run out of time maybe the carrot is mightier than the stick after all?
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