Press release: Pragmatic changes to penalties regime can lead to improved compliance

HMRC announced today that it has now issued the first in-year penalties notices to employers with fewer than 50 employees who missed the deadline for sending PAYE information to HMRC. But rather than issuing penalties automatically when a deadline is missed, HMRC have said they will take “a more proportionate approach and concentrate on the more serious defaults on a risk-assessed basis.”

ATT President, Natalie Miller, commented:

“This is the second very positive step resulting from HMRC’s penalties review, following the news that those who send their self-assessment returns in late will not be fined if they have a reasonable excuse.

“Sometimes, a taxpayer or an employer who has generally been compliant, misses a deadline for submitting information to HMRC that is more likely to have been caused by ‘life getting in the way’ (as a senior HMRC officer succinctly put it at a workshop) or by unanticipated complications in the filing process. In this situation HMRC are right to indicate that they will take a proportionate approach and focus on more serious abuses and persistent failures.

“Clearly HMRC’s approach is driven in part at least by pragmatism. They are finding it difficult to cope with a system that issues hundreds of thousands of fixed penalties, in particular where taxpayers don’t pay them and therefore resources have to be put into chasing very small amounts, or when they appeal them citing ‘reasonable excuse’ and HMRC have to then follow this up, again using valuable resources in doing so. From this perspective too this change of approach is sensible.

“With increasing digitisation HMRC’s systems should find it easier to identify the ‘serial late filer’ and ‘serial appealer’ so that this more pragmatic approach is not open to abuse. However, it will be important to communicate to ‘first time late filers’ why they are being offered this period of grace from penalties. If HMRC do not explain their approach then there is the concern that some of these employers may end up becoming ‘serial late filers’ because they will see the Penalty system as an ‘empty threat’. The system has to retain its ability to influence behaviour and so the employers who won’t be receiving their penalties due to this new approach need to be made aware of the reason why.

“There are plenty of other ways in which the penalties regime could be improved. In our response to HMRC’s consultation, ATT made more than 20 recommendations and suggestions – from bringing VAT Default Surcharges into line with other late payments regimes to more efficient use of suspended penalties to encourage long-term compliance to considering the possible merits of tax awareness courses in place of monetary penalties.

“If our ideas and those of everyone else who responded to the consultation are taken into account, there is a real chance to develop an approach to penalties that is coherent, practical, cost-effective and capable of delivering greater compliance. The process has started well. Provided that HMRC keeps a similarly open mind in subsequent stages, there is a real opportunity to create a penalty regime that makes much better sense than parts of the system that we have at the moment.”

Technical Team