14th May 2015
The Low Incomes Tax Reform Group (LITRG) has called on HM Revenue and Customs (HMRC) to ensure that its penalties system better appreciates and recognises the difference between occasional error and deliberate non-compliance.
The organisation has responded to an HMRC consultation which seeks to make the tax penalty system more reflective of taxpayer behaviour.
It highlighted that currently there are some penalty regimes – the automated self-assessment penalty regime in particular – in which a taxpayer who makes a genuine mistake is penalised as heavily as one persistently delaying their return or paying what they owe.
LITRG’s nine recommendations include making better use of existing safeguards, as well as adjusting processes so that the likelihood of taxpayer error, and hence the need for penalties, is reduced.
Anthony Thomas, chairman of LITRG, said: “HMRC’s stated wish in carrying out this consultation is to ‘better differentiate between deliberate and persistent non-compliers and those who might make an occasional error for whom alternative interventions are more appropriate’. We are in full agreement.
“The review of HMRC powers that took place between 2005 and 2009 drew the important distinction between failure to take reasonable care, which attracted a penalty, and innocent error despite taking reasonable care, which did not. It also made clear the different standards of ‘reasonable care’ expected from, say, a tax adviser or accountant than from an individual with no experience of the tax system and/or poor literacy or numeracy skills.”
Thomas also pointed out that the automated self-assessment penalty regime for late filing and late payment has lost sight of both of those principles.
HMRC also emphasised their commitment to use digital technology to improve the operation of the penalty system. Thomas added: “We agree that improved digital services should make it possible for compliant taxpayers to get things right all, or nearly all, of the time – but nobody should experience an inferior service from HMRC if they lack access to, or are not competent in using, online services. It is also naive to assume that proportionality and fairness can be achieved solely by reliance on digital systems – in any behaviour-based system there will always be the necessity for the exercise of human judgment.”