HMRC Penalties: a carrot or a stick?

HMRC Penalties

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?

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

How will RTI (Real Time Information) affect me?

RTI (Real time information)

Will this affect me as a one man Limited Company, should I expect my accountant just to deal with it within the fee. What do I need to do to comply and protect myself?

Although you may not have any employees, one man Limited Companies will be affected by RTI. The reason is that as a one man Limited Company you are a director of your company. For the purposes of PAYE this means you are therefore an employee of the company, in the role of company director, which is within the scope of RTI.

RTI is replacing the year end PAYE P35 Employers Annual Return which details employees tax, NI and statutory payments made during the tax year. With RTI this data must instead be submitted to HMRC on a monthly or quarterly basis throughout the year.

A key point is that this affects PAYE submissions only. It has no impact on dividends or other payment arrangements.

The main benefit of RTI is that it will eventually make the PAYE system easier for employers and HMRC to manage and will be far more accurate. All this should mean that HMRC have better information to help them review employee’s income information and ensure they are paying the right amount of tax and NI in any tax year. The other key point is this will also mean that any benefits payable to employees are reported to HMRC as you go, and any tax codes can be amended accordingly. The majority of employers and pension providers will start using this system from April 2013 and all employers must be using it by October 2013.

The biggest issue with RTI is the sheer volume and frequency of administration.

For a one man Limited Company the easiest way to administer this is to plan all 12 of your salary payments in advance. This makes it much easier for you to then simply submit your pre-calculated PAYE figures on time and therefore avoid any late penalties. As the current late penalty proposals are for a minimum of £100 per week for small companies these are clearly best avoided.

If you have an accountant, agree with them what your monthly salary amounts across the year will be – and stick to them. Varying your salary without telling your accountant, making ad hoc cash withdrawals and so on are what may potentially cause problems. Ideally your accountant should be able to deal with your RTI administration for you as part of their regular service.

In practice, with good planning, the majority of one man Limited Companies who have an accountant will not experience much change when RTI rolls out.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.