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So long Steeden v Carver, It was fun while it lasted
In her recent round of tax lectures, Rebecca Benneyworth warned that reforms to the penalty system brought in by the Finance Act 2011 have taken away two of the profession’s favourite safety nets. John Stokdyk presents his interpretation.
Perhaps the biggest change for advisers and their clients for 2010-11 tax returns will be alterations in the penalty regime that will remove some of the most useful tricks of the tax adviser’s trade.
It’s not just those who file late paper returns who are going to suffer. More significantly, amendments to the Finance Act 2011 removed the subsection that held that a tax penalty was capped by the “relevant” amount - being the amount of tax outstanding on 31 January.
In previous years, Rebecca explained, you could advise a client them to pay an estimated amount for what’s due to clear the liability and the associated penalty. “That’s ended. They will now be liable to a £100 penalty if a return is not filed by 31 January 2012.”
The other victim of the penalty rationalisation is our old friend Steeden v Carver, the 1999 Special Commissioners ruling that exposed a drafting mistake that effectively gave advisers a “free shot” to file returns on 1 February. Rebecca explained that under the legislation the period of default started at midnight at the end of the day the return was due (31 January). But the default ended - instantaneously - on midnight the day before a return was filed, so if a return was filed on 1 February, there was no period of default.
HMRC didn’t like it, but could do nothing about the loophole - aside from lobby for a change in legislation. That has now happened and the definition has been revised to make Steeden v Carver redundant.
There are winners and losers under new penalty regime, but who these people will be depends on the circumstances of their individual cases. There is more certainty for errant taxpayers (and a welcome £3,000 cap on some filing penalties such as PAYE and CIS), but as Rebecca has pointed out, fewer escape routes to mitigate the impact on some clients.
She wondered, however, whether the new hard line was going to be such a long-term success for HMRC. “Little old ladies stuck with a return who are owed a modest repayment will also be fined £100,” she warned. “Does anybody in HMRC have any idea what the PR disaster will be? How long will it take Bill and Sian to have one of these ladies weeping on their sofa?”
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