Our Tax Disputes & Resolutions team at HaysMac has responded to HMRC’s recent consultation on the reform of behavioural penalties. This response aims to provide a voice for our clients and future clients, as penalty negotiations are central to our work. Below, we outline the key points from our response:
Timing of the error – 10% uplift
HMRC introduced a policy that increases penalties for disclosures made after a significant period (three years, according to their guidance) by restricting the penalty range by 10% for the timing of the error. For example, a prompted careless penalty, which would have had a minimum of 15%, would now have a minimum of 25%.
We fundamentally disagree with this restriction as it is HMRC’s policy and non-statutory. The legislation refers to the timing of a disclosure, but this policy stretches the wording to its maximum, as it clearly refers to the existing mitigation categories of telling, helping, and giving access, not an additional 10% applied before considering them.
Initially, the usage of this policy by HMRC was patchy, but it has now become well-established and is applied by HMRC in most circumstances.
We feel HMRC would have been on shaky ground had this been challenged in the tax tribunal as the main issue of a tax case. We responded by highlighting that this uplift means that for those making unprompted, voluntary disclosures, achieving no penalty or 0% is not always possible. We believe that those who come forward and ‘do the right thing’ in HMRC’s eyes should always be able to achieve no penalty.
Careless penalty suspension
HMRC’s voluntary disclosure team ignores penalty suspension; the online forms do not allow for it, and if you try to include a penalty rate of 0%, the reviewing officer would say this is incorrect. Similarly, we have been told that they ‘do not do’ suspension of careless penalties. This can be successfully challenged, ultimately getting the penalty suspended, but it requires some back and forth, resulting in additional professional costs. This is unfair compared to someone under enquiry, as suspension should be considered.
We note that in some enquiry cases, an inspector has not appeared to offer or apply suspension until we raised the issue. HMRC’s guidance states they should consider this in every case, but there seems to be inconsistency. We confirmed we would welcome HMRC’s suggestion of automatic penalty suspension or even a caution system to standardise the approach to penalties and reduce unnecessary burden and cost on the taxpayer.
Offshore penalties – simplification
Currently, there are three separate bands for offshore penalties, depending on the categorisation of the country the error relates to, in addition to failure to correct (FTC) penalties for tax years 2015/16 and earlier. Including onshore penalties for UK matters, one could be dealing with five different penalty regimes for the same client, which is overly complicated.
Our representations covered the FTC penalties for offshore matters for 2015/16 and earlier and highlighted how disproportionate these often are to the matter being disclosed. Most cases involving FTC penalties do not relate to serious tax avoiders using overseas structures they were designed to target. We suggested a minimum limit or safeguard to disapply these penalties for trivial matters.
Proposed new penalty regime
HMRC’s consultation document also proposed a new penalty regime to simplify penalties going forward. While this sounds effective on the surface, in the short and medium term, it would actually be more complicated. Past tax years would still fall under the current rules, so the new penalty regime would need to be considered in addition to existing penalties. We believe simplifying existing penalty regimes would be more effective and reduce complications.
Our team has extensive knowledge of HMRC’s processes and penalty regimes and is expert in negotiating and appealing against behavioural penalties imposed by HMRC. Should you wish to discuss any of this further or how we may assist, please do not hesitate to contact Danielle Ford, Head of Tax Disputes & Resolutions or Riocard Hoye, Senior Manager.
