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.