Wider reform of UK enquiry regime is needed

That’s according to the Institute’s Northern Ireland Tax Committee chaired by Janette Burns when the Committee responded last week to the UK Government’s consultation ‘Reform of behavioural penalties’. A series of recommendations featured in the submission with the Committee concluding that the UK Government should implement more broad ranging reform of its enquiry regime, including behavioural penalties, by introducing a more graduated and tailored level of compliance interventions, similar to the regime currently in place in Ireland. The Committee also advocates that there is a need for the Government to do more to tackle tax complexity which can be a factor when a taxpayer makes an error that results in a penalty.

In summary, the key recommendations are as follows:

• The minimum penalties for certain inaccuracies and failures to notify should be removed,
• No failure to notify penalty should be charged if a taxpayer pays the associated tax liability on time or has filed on time, even if they have not notified by the relevant deadline,
• A fixed reduction to each maximum penalty should be introduced based on the type of disclosure made by the taxpayer,
• HMRC should explore how fairer penalties can be introduced for the same error made in multiple tax years,
• The two categories of deliberate behaviour should be combined into one category and a more simplified regime should be introduced for taxpayers making a full unprompted disclosure in this category,
• Ireland should be excluded from the definition of offshore. Lower penalties should also be introduced for offshore inaccuracies, particularly where these are asset based. In addition, the offshore time limits should be reduced,
• Penalty suspension should be offered for careless errors on a routine basis and the conditions which must be met should be consistently applied and clearly set out in guidance so that the taxpayer and agent know what to expect and what will be required of the taxpayer,
• No new non-financial sanctions should be introduced,
• HMRC should conduct a full review of both the publishing deliberate defaulters legislation and the Managing Serious Defaulters Programme to assess their effectiveness as non-financial sanctions with a view to introducing reforms and improvements to each of these,
• A review should be conducted of the rates of interest charged and paid by HMRC which should also address the interaction with behavioural penalties, and
• A range of measures should be undertaken to tackle tax complexity, which should as a minimum include the establishment of a Tax Simplification External Forum reporting annually to Parliament.