Simon Sweetman explains HMRC’s new powers to suspend a penalty and discusses the implications for taxpayers and agents.
One of the more interesting aspects of the new powers given to HMRC is the ability to suspend a penalty. Paragraph 14, Schedule 24 FA 2007 says that HMRC may suspend all or part of a penalty for a careless inaccuracy under paragraph 1 by notice in writing to the taxpayer (referred to as P).
However, they may only do this if compliance with a condition of suspension would help P to avoid becoming liable to further penalties under paragraph 1 for careless inaccuracy. This notice can specify action to be taken and a period within which it must be taken.
At the end of that period, if HMRC is satisfied that the conditions of suspension have been complied with, the suspended penalty or part is cancelled, otherwise the suspended penalty or part becomes payable.
‘Careless’ inaccuracies
Paragraph 3 says that an error is ‘careless’ if the inaccuracy is due to failure by P to take reasonable care.
HMRC has now issued a factsheet (CC/FS10) to tell us what they think this means. This sounds increasingly like the catechism and rules for making a good confession (as I recall them from my youth). One has not only to confess one’s sins, but to have a firm purpose of amendment and a resolve never to commit them again. However, in those days one had to go to confession at least once a year, so it came round rather more often than HMRC enquiries.
In the past, the role of HMRC has been akin to that of the Spanish Inquisition (the Monty Python version), although according to some specialists you should always expect a S.9A enquiry. This might suggest that a suspended penalty would require public recantation in the manner of Galileo, but of course a suspended penalty and ‘naming and shaming’ cannot go together under these rules.
What will happen is that HMRC will offer suspension of a penalty (I nearly said penance!). This presumably will not be a large penalty, since the maximum for carelessness is 30%, and it would seem unlikely that a ‘top end’ case would be seen as suitable for suspension. The taxpayer (P) must then agree conditions with HMRC (presumably it’s more about the keeping of records than self flagellation).
Supervision
There is clearly going to be a very important role here for agents, who will have to assure themselves that their client can meet the conditions and then monitor their progress before they have to go back to HMRC to play the role of Devil’s Advocate. If you have an adviser, you can also ask them for help.
The factsheet says that HMRC will set the conditions and the taxpayer needs to ‘understand’ them. In practice one might hope that there will be an element of negotiation here, especially if the agent is prepared to supervise the arrangement. Of course one has to be categorised as ‘careless’ here, but there is no intermediate category between ‘careless’ and ‘deliberate’ - I suppose that question is for another day.
