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<b>Tax News:</b> HMRC responds to ruling on tax penalties and human rights. By Nichola Ross Martin

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1st Mar 2006
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HMRC has addressed the recommendations made by the European Court of Human rights in the case of King v UK (European Court of Human Rights, Application No 13881/02), which confirmed that penalties for negligence under s.95 TMA 1970 are subject to Article 6 of the European Convention on Human Rights.

The Revenue, in its February edition of Working Together, says it now accepts that all direct tax penalties having a statutory maximum of 100% of the tax difference or tax unpaid are subject to Article 6. However, it does not concede that Article 6 applies to any other type of direct tax penalties.

Examples of the types of penalties subject to Article 6 are:
' S.95 Incorrect return or accounts for income tax or capital gains tax.
' S93(5) Failure to comply with a notice to file an income tax or capital gain tax return.
' Sch. 18 Para. 20 FA 1998 Failure to file a CTSA return.

HMRC says these points will have little practical effect, as its guidance and procedures have been broadly compliant with Article 6 since September 2002 (Enquiry Manual paragraph EM1362 et seq.).

Although the Court confirmed the penalty charged in Mr King's case, HMRC were criticised for the delay in making a formal penalty determination. Article 6 guarantees the taxpayer '''the right to a fair and public hearing within a reasonable time.' The nine month gap between the underlying tax assessments becoming final and the formal penalty determination being issued, was considered to be a breach of Article 6 for which Mr King was awarded part of his costs.

The Court recommended that HMRC should, in appropriate cases seek to have appeals against tax assessments and penalty determinations heard at the same Commissioner's hearing.

Responding to the ruling, HMRC said: "As a consequence the guidance has been amended so that if it is not possible to settle tax by agreement, and a contentious Commissioners hearing becomes necessary, we would make a penalty determination so that both appeals could then be listed for the same hearing.

"Should the taxpayer be dissatisfied with the rate of progress towards finalising matters they will be specifically told when the enquiry is opened (EM1551 and 1554), and reminded when we indicate penalties may be sought (EM1362) of their right to apply to the Commissioners to close the enquiry.

"Employer Compliance Reviews are not covered by the Self Assessment rules but we are nonetheless taking the opportunity to amend the Employer Compliance Handbook, where appropriate, to correspond with the above guidance."

Nichola Ross Martin

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