Simon Sweetman was an inspector of taxes for 18 years. He left the Inland Revenue in 1989 to join Chartered Accountants Scrutton Goodchild & Sanderson, later part of Scrutton Bland, where he was successively a senior manager and later a partner. He has been an independent consultant since 2001. He is a former member of the tax policy unit of the Federation of Small Businesses and the small business working group of the Chartered Institute of Taxation. He is also on the tax law review committee of the Institute for Fiscal Studies and is currently chair of the Working Together group for the Suffolk and North Essex area.
Penalties: more grief for bewildered taxpayers
This is about penalties. I know that the word “penalties” is one to strike fear into the heart of every British person, especially since the Olympics which showed that the curse of the quarter-final penalty shootout defeat cannot be avoided by labelling the team as GB or even by filling it with women.
But it’s not that sort of penalties this is about, but HMRC’s penalties for failing to complete a tax return.
By definition this is not aimed at the worst offenders, since these penalties apply to people who one way or the other have registered themselves with HMRC as liable to complete a return, and are obviously people that HMRC knows about.
Those with longer memories will know that when Self Assessment was introduced penalties were increased and some of us felt this was too much: but now penalties have been very sharply increased so that there is a penalty for being late even if no tax is owed or even due, and that there are rapidly mounting daily penalties once you are three months late.
The first question to ask is what problem these increased penalties are intended to solve. The number of returns delivered late has fallen steadily, but given that there are interest charges on tax paid late the real problem must be returns that are not delivered at all: presumably because people have skipped, gone bankrupt or died. In all probability, too, many late returns will be on paper from those unwilling or unable to complete their returns online.
As a result there will be some people – and they will be the feckless rather than the wicked – who will face financial burdens they do not understand and cannot afford. The first reminders about daily penalties are coming out with £1200 already due: for some people that is a lot of money. Remember that a very high proportion of returns go to pensioners, many of them with not much income. In the old days they would have gone to HMRC for help, but the leaner tougher HMRC of today doesn’t do that sort of thing any more. In some places there may be charitable or pro bono help, but it is very thinly spread.
Getting a small extra number of tax returns in early is going to make no real difference to the sum of tax collected (assuming that the penalties have that effect): what it presumably will do is enable HMRC to achieve targets that they have effectively set themselves (or, in theory, bargained toughly with the Treasury for) for getting X% of returns in timeously. It is unlikely that these are very large returns, and the whole exercise just seems to produce more grief for bewildered taxpayers.