Penalties Reform - Consultation on extending new penalty regime to other taxes

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17 January 2008

The Finance Act 2007, after extensive consultation, provides the basis for a new structure for imposing financial penalties where a taxpayer

1. files an inaccurate tax return that (1) understates the taxpayer's liabilities, (2) overstates a loss, or (3) overstates a repayment of tax, and the inaccuracy was careless or deliberate, or
   
   
2. fails, having received a tax assessment, to take reasonable steps to notify HMRC within 30 days that it is an under-assessment.

The new approach relates the determination of penalties to the underlying behaviour that gave rise to the inaccurate return or assessment. If it was caused by a mistake or misinterpretation of fact or law and reasonable care was taken, there is no penalty. Otherwise penalties at three different levels may be imposed to reflect the increasing seriousness of the behaviour, namely (1) failure to take reasonable care, (2) deliberate understatement, and (3) deliberate understatement with concealment. The penalty percentages vary according to the seriousness of the behaviour categories, with reductions for disclosure. These new provisions are expected to apply for return periods beginning on or after 1 April 2008 where the return is due to be filed on or after 1 April 2009.

As the next stage of its review of penalties, HMRC has published a consultation document that considers the way in which the new penalty regime might be extended to other taxes, including:

• pension schemes (the "accounting for tax" form)
• accounting to HMRC for repayments of student loans
• recovery of SSP, SMP, SAP and SPP from HMRC.

In the context of payroll, the extension of the new legislation to student loans and statutory payments would mean that a single penalty regime would apply to all information reported on year-end returns P14 and P35. HMRC suggests that this consistent approach would be welcomed by employers.

Comments on the proposals are invited by 6 March 2008. Instructions for sending comments are given in the consultation document.

...UK Payroll News - Latest

Further information:
Modernising Powers, Deterrents and Safeguards: Penalties reform - the next stage

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