The Revenue have announced new thinking on how penalties for incorrect tax returns and accompanying safeguards could be updated . The document contains a new approach for the key area of penalties for incorrect returns. This follows on from an earlier consultation paper in March 2006, and involves:
* a single penalty structure to apply for incorrect returns for income tax, corporation tax, Pay As You Earn (PAYE) and National insurance Contributions (NICs), and VAT
* no penalties where a taxpayer has taken reasonable care to complete the return correctly but makes a mistake that understates their tax liability
* a moderate penalty if a taxpayer understates their liability by failing to take reasonable care
* higher penalties if a taxpayer deliberately understates their liability
* higher penalties still, if a taxpayer covers up any deliberate understatement
* substantial reductions, or even complete waiver, of penalties if a taxpayer voluntarily discloses irregularities and gives HMRC all the help they need to quantify the tax lost
* smaller reductions of penalties if a taxpayer discloses an irregularity at a time when they had reason to believe HMRC suspected it
* suspended penalties for taxpayers who fail to take reasonable care when completing their return but agree to take steps to ensure that the problem will not recur.
I sincerely hope that the accounting profession welcomes these changes. It's been a continual (and fair) gripe that smaller taxpayers in the UK have been punished for innocent errors whilst large taxpayers are not penalised when that would be appropriate. This new approach hits the right people for the right things, and takes a management approach to many of the issues. As a practitioner I welcome that.
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I like the sound of that – people who make an honest mistake and own up to it won’t be penalised. Let’s face it, nobody gets everything right all the time.
The suggested change would also give taxpayers an incentive to own up if they think they’ve made a mistake, rather than waiting for HMRC to spot it before they say anything.
It also implies that HMRC trust taxpayers to do the right thing. That’s treating them like responsible adults.
Definitely a step in the right direction.
M
Richard – I think I’m right in saying this is broadly in line with the Australian/Canadian model. I’m fascinated by Emily’s response because it is exactly that which the Aussies (I’m told from reading on this) were counting. That suggests the ‘presumptive innocence’ (my phrase) but with very clear stick and carrott options makes life crystal clear for that ‘silent majority’ for whom I’ve been attempting to carry the flag.
If you believe (as I do) that numbers count, then this is a very positive step in the right direction to not only solve problems you identify for the profession, but also give that same profession an honourable exit from practices it struggles to understand let alone duplicate. That has to be regarded as innovative thinking because it allows all interested parties to concentrate on the real villains of the piece.
In the wider sphere of things, this could be much more important than any of us realise. e.g. If it gives those 000’s of snaller practitioners the certainty they’re playing on a level playing field then the combination of sites like this as a rallying point and the careful explanation of campaigning positions becomes extremely powerful. IMO.
It’s what I’ve long called the ‘slow cooking cauldron.’ (Or some such)
Thanls for your attention.
This sounds great in theory. How do you deal with differences in INTERPRETATION, where the Revenue does not understand a small business and discounts their arguments for legitimate expenses?
How do you deal with a revenue who gain commission for anything they find and bully the smallest businesses into accepting a judgement that they don’t believe?
Looks good on paper. The reality, in my experience, is that the Revenue goes after easy pickings and people who can’t afford the time and money to fight.
It took me a year to get them off my back for tiny sums and I still don’t agree with the findings. I never want to experience that level of threatening and bullying behaviour from HMRC again.