Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

More on penalties - CIS this time! by Simon Sweetman

by
22nd Feb 2009
Save content
Have you found this content useful? Use the button above to save it to your profile.


Our theme of the month, enquiries and penalties seems to be heavily weighted towards the penalty side, and no wonder, with new penalties commencing in just over a month, more on the statute book awaiting commencement, and yet more under consultation. Can one have too much of a good thing, Simon Sweetman wonders?

HMRC have produced a new document about changes to the penalty regime for the Construction Industry Scheme (CIS - Modernising Penalties and Payments – February 2009). One might feel that HMRC is spending too much time thinking about penalties rather than anything else, and that too much concentration on penalties can keep the potentially compliant offside rather than enabling them to join the visible economy.

Although this document is specifically about the CIS, it in fact includes a number of thoughts about penalties which give us more idea about HMRC's thinking and the conclusions they are inclined to draw from their research. In general, they say, the penalty structure should influence behaviour, be fair and proportionate, and should be effective and set out in legislation : not I think conclusions that anyone would disagree with.

It quotes the key findings from the recent MORI research into why people pay late, and the first comment here is typically, paying tax is seen as less important than making other payments. Well, up to a point, Lord Copper. What the research actually seemed to show was that tax was perceived as less important than the kind of payments (to significant creditors, for instance) that were seen as keeping the business afloat. Some taxpayers prioritised other payments – holidays, for instance, but then people carrying on business are real people as well, with real family pressures : and I would have doubts about that finding because of the size of the sample. The danger is that a rigorous penalty structure is simply a somewhat brutal attempt to ensure that it is your debt that gets prioritised over other people’s by increasing the pressure on the debtor, but there is a tipping point here somewhere.

There is a very important paragraph here

There is absolutely no doubt that in considering how to encourage people to file returns and pay tax due on time, penalties are only a small part of the picture. Simplifying those obligations where possible, clearly communicating what taxpayers need to do, and providing accessible targeted support, are likely to have more effect than penalties on their own. HMRC is continuing to work on improving support for taxpayers

This should be written everywhere in big letters. HMRC then ruminates on what it has found for itself

There are some important lessons HMRC can learn from the current variety of penalty regimes that HMRC operate.

  • small fixed sum penalties at filing date do positively affect filing patterns;
  • the current late filing penalty regimes are not very effective in addressing prolonged late filing (if people miss the deadline they often go onto be very late filers);
  • late payment penalties do positively affect payment patterns – most notably the income tax self assessment surcharge and VAT default surcharge.
  • where there is no interest or late payment penalty, payment rates are significantly lower, for example in-year PAYE;
  • warnings of daily penalties for late filing can be effective;
  • some of the current regimes can produce results which appear disproportionate and are perceived to be unfair

This begins to indicate that late filing and late payment may indicate different patterns of behaviour. Certainly for filing once the deadline is missed there may be very little urgency about getting a return in if the approximate tax has been paid. On the face of it HMRC has lost little by this, but it may be a signal of deeper trouble that may have an effect later. The person who fails to file but pays the tax is surely a prime candidate for help rather than penalties.

What HMRC has taken notice of is that in year PAYE and CIS payments are frequently late, though they are usually correct at the end of year : and there are employers who deliberately pay late. This is a timing issue and I don’t think they believe that they will get any more tax : they will get it sooner. It clears up a corner, but whether it’s worth the hassle is another matter. Can’t see the wood for the trees here, I think.

Tags:

Replies (8)

Please login or register to join the discussion.

avatar
By dhollister
26th Feb 2009 17:02

CIS status
Thanks Andy, good idea, spoke to CIS helpline who referred me to the relevant link

http://www.hmrc.gov.uk/cis/business-payment-support.htm

"Business Payment Support Service and subcontractors’ gross payment status
At the Pre-Budget Report, HM Revenue & Customs (HMRC) announced a new Business Payment Support Service to help businesses having difficulty making payments to HMRC. A number of people have asked what effect entering into such an arrangement will have on subcontractors who are registered for gross payment status.

If you have come to HMRC to agree a Time To Pay (TTP) arrangement before the payment is due, then this will not affect your gross payment status. Even if you have entered into a TTP arrangement, you may still get a letter advising you that we have cancelled your gross payment status, as a result of our automated tests. If you receive such a letter, please appeal immediately as indicated in the letter and explain that you have a TTP agreement with us that you entered into before the due dates of the relevant payments. In most cases your gross status will be restored, unless there were other failure reasons unrelated to the payment in the TTP arrangement."

Thanks (0)
avatar
By User deleted
26th Feb 2009 16:12

CIS nightmare
I have a client to whom I do his CIS return. We were advised that the returns should be sent to CIS centre at Liverpool. This we did and also attached to the return was a cheque for the amount due. The cheque cleared was paid by the bank the next day when before the CIS deadline. Mysteriously the CIS return has gone walkies. We reason with CIS to see sense but they refused. We stated is if the cheque sent with teh retun had been cashed therefore HMRC must have received the return - not buts. Persons at HMRC issues me with umpteenth fines for non compliance. How can this be or is it a case of HMRC loosing more records. People at HMRC (CIS Centre) is pretty economical with the truth claiming compliance. I asked them how this so when the cheque had already been cashed, especially when the cheque was attached to the retuned itself. Has HMRC lied through their teeth or just plain ignorant and stupid? Have I missed out something here?

Thanks (0)
avatar
By chrisdxuk
26th Feb 2009 13:48

like many of you
Like many of the readers of this article I have a client sent a £100 penalty for late filing. He was mortified, he filed online himself and couldn't believe HMRC's dictatorial attitude. No waiver, no refund just a pay up or else attitude.

Thanks (0)
avatar
By gilderda
26th Feb 2009 12:21

Instalment payments

The TTQT review for CIS classes a failure as a "late" payment of Corporation Tax. Presumably (and it's a pretty big presumption) if a revised payment date has been agreed as part of an instalment plan then this becomes the due date in determining whether or not it is late.

Might be worth ringing the CIS Helpline just to check, unless someone else has already done it and knows the answer?

Thanks (0)
avatar
By dhollister
25th Feb 2009 13:38

PENALTIES AND CIS
The Inland Revenue are offering taxpayers the opportunity to pay their PAYE, Corporation Tax and personal tax late, by arrangement and are widely advertising this policy. One client has gone so far as to suggest to me that in the light of the interest rates involved, I am actually failing in my duty to all clients with overdrafts if I fail to advise them that borrowing off HMG would be cheaper ......... not, in my opinion, the spirit of the thing. However.

I have a small builder client - a Limited Company - who cannot at present afford to pay the 31st March Corporation Tax bill and who intends to take up the Revenue's kind offer of delayed payments.

Does anyone know whether taking up the 'stage payment' offer will result in the withdrawal of the full CIS certificate, or whether it will prejudice the full certificate at a future renewal time ?

Thanks (0)
avatar
By alanhone
25th Feb 2009 12:53

Disproportionate & unfair
"some of the current regimes can produce results which appear disproportionate and are perceived to be unfair"

We have to operate CIS and endeavour to be 'sqeaky clean' as loss of CIS status would seriously jeopardise our cashflow.
Last month, as is often the case, we filed a NIL return (no tax to pay), several days before the due date. We then received a notice of a £100 penalty for late filing. Upon appeal it was stated that our return was ENTERED on the system 1 day late. It is unclear whether this was due to postal delay or delay in data entry but even though no tax was due the penalty was levied nevertheless.
After some application of pressure the penalty has been "set to zero". I think this means that we have no fine but still get our licence endorsed - who knows. There is no method, apparently, of wiping the slate clean, even if the error was HMRC's (which it may well have been).
Internet filing might be the answer, but that has proved to have other problems in our experience.
One gets the impression that in the eyes of the Treasury everyone in construction (hence CIS) is a cowboy, or a crook, or both. Meanwhile, we just soldier on, trying not to be made part of the statistics!

Thanks (0)
avatar
By AnonymousUser
24th Feb 2009 08:21

CIS penalties
Ron, you can find the document here - http://www.tax.org.uk/showarticle.pl?id=7824&n=3793 - which is on the open part of the CIOT website. Not sure why it's not on HMRC's.

Thanks (0)
avatar
By roncoates
23rd Feb 2009 14:32

CIS MODERNISING PENALTIES
CAN ANYONE DIRECT ME TO THE RECENT (02/09) NEW DOCUMENT CONCERNING CHANGES TO THE PENALTY REGIME ?

Thanks (0)