HMRC thinking about 'softening' the £100 Self Assessment penalty regime

9 February 2015

tax-imageIt seems wonders will never cease. Earlier this month we reported that almost 900,000 people failed to deliver their 2013/14 Self Assessment Tax Return by 31 January, leading a happy payday for HMRC as each one of those will be issued with an automatic £100 penalty. However, HMRC itself now thinks that perhaps its penalty system is “too rigid” and has opened up a consultation on whether the penalty regime should be softened to be less harsh on occasional or small offenders.

It is, of course, not the first time that the penalties regime has been investigated- between 2005 and 2012 tax penalties across the board were reviewed and the most significant change for income tax paying individuals was that, from 2012, the £100 penalty was levied even where there was actually no tax outstanding. So even if you didn’t owe the taxman any money, you could end up owing money. The situation was exacerbated last year when the high earners child benefit charge came into effect, meaning those who hadn’t disclaimed their entitlement may have needed to complete a return for the first time.

Now, HMRC has issued a 26 page consultation document which outlines its thinking on the issue and details a number of possible amendments to the penalty regime. While HMRC stressed that the introduction of a £100 penalty regardless of the tax due did increase on-time compliance, it wants to be seen to be differentiating between coming down hard on “the honest majority” and instead wants to focus its sternest attentions on the “dishonest minority”. HMRC are also very clear that “penalties are not to be applied with the objective of raising revenues.”

What HMRC is considering are questions such as whether penalties should be applied for an “uncharacteristic failure by an otherwise compliant customer”, or for those who make “a simple mistake when entering a particular tax regime for the first time”.

Possible amendments to the system include the withdrawal of the £100 penalty if people are “ a day or two” late filing a return, although this would have to be combined with the prospect of a higher interest rate on late payment of tax to both prevent the deadline merely becoming two days later and also to be a heavier penalty on those who actually owe tax. Alternatively, HMRC are proposing a possible tax “driving licence” scheme, where you get penalty points for non-compliance, potentially across a number of taxes, with penalties rising in severity and amount with repeated failures to comply.

The consultation is open until 11 May, and anyone can respond, should they feel so inclined. The email address for responses is [email protected] or these can be made by post to: Paul Miller, HMRC, Tax Administration Policy, Room 1C/06, 100 Parliament Street, London SW1A 2BQ.

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