Editor in Chief (interim) AccountingWEB
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Has HMRC taken up penalty farming?

13th Sep 2012
Editor in Chief (interim) AccountingWEB
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Mike Down and Gary Heynes from Baker Tilly raise concerns that HMRC is applying its ‘new’ penalty regime for inaccurate tax returns a bit too zealously.

HMRC is on the look-out for new ways of increasing the flow of revenue into the Chancellor’s coffers.  Encouraged by politicians of all parties and the media, the department is quite rightly encouraging defaulters to voluntarily come forward, chasing tax evaders and tackling those involved in aggressive tax avoidance schemes.  However ordinary businesses and individual taxpayers are increasingly being caught out by what many will view as an attempt to raise revenue by the backdoor – put simply, HMRC appears to be over-zealously applying the ‘new’ penalty regime for inaccurate tax returns.

Introduced four years ago and still bedding-down, the new regime was designed as a simplified and transparent system which, whilst recognising that simple and innocent mistakes are made, would impose clear levels of penalties to punish errors where taxpayer ‘behaviours’ are at least careless, or deliberate.

The suspicion in some quarters is that revenue-raising in straitened times has become the driving principle with HMRC not accepting that genuine mistakes can and do in fact occur.

Critics point to incorrect tax return cases where HMRC accepts that a taxpayer might have made an innocent error, but still contend that he or she has failed to take reasonable care before signing the tax return.  In such cases, a penalty of up to 30% of the extra might potentially be charged.  HMRC also argues that the concept of reasonable excuse (which in the past has typically applied to cases of death of serious illness of a relative or business partner) has no relevance to the new inaccuracy penalty regime.  Others point to HMRC’s reluctance to alert the taxpayer to the fact that in many instances, suitable conditions can be set to prevent the re-occurrence of an error, thus enabling the penalty to be suspended.

HMRC says that it is applying a simple rule: if a taxpayer has failed to take reasonable care then it is only right that a penalty should be charged. The difficulty, of course, lies in defining reasonable care.  In a recent Tribunal case HMRC argued (unsuccessfully) that an error by an adviser was still the responsibility of the taxpayer. The argument was extended as far as an assertion that it was the taxpayer’s responsibility to ensure that the advice he had received was correct.   The Tribunal, in finding for the taxpayer, pointed out that HMRC’s own guidance makes a clear distinction between someone who says “I leave it all to my agent” and another who checks the adviser’s work to the best of his or her ability and competence. The guidance summarises the difference quite concisely: “…an ordinary person cannot be expected to challenge specialist professional advice on a complex legal point. But they ought to be able to recognise the complete absence of a major transaction.”

It may be that the tide is turning against HMRC’s very strict interpretation of the new penalties legislation?  A handful of recent Tribunal decisions have gone in the taxpayer’s favour and in the light of cases where relatively trivial errors and amounts are involved, HMRC’s critics may take the view that a form of penalty farming is taking place.


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14th Sep 2012 17:19

Not only for incorrect returns....

Doing HMRC’s work for them...again...

New client came to me a few months ago. He had cancer and knew he did not have long to live. He wanted to get his tax affairs up to date so that his wife would not be bothered after he died.

It turned out that he had a £3000+ tax bill but he had ceased work over a year ago living on his savings/disability benefit and thus had no money to pay the bill. Tax return was done and liability agreed. I charged nominal amount and was paid.

Client dies, I wrote letter to HMRC advising them.

Waited over two months before receiving a letter back from HMRC Newcastle stating that in the circumstances they would cancel debt - letter was dated 17th August.

Today received a demand adding the 6 months penalty.

I go onto HMRC’s website to find I am still down as agent.

Phoned HMRC who took great delight in telling me that they would not speak to me as I was not down as the deceased’s client. Had to get the executor (wife) to submit 64-8 etc etc etc.

Point is... why do I have to spent my time getting authority when I wont be paid just so I can speak to HMRC on the phone to tell them that they should update their records.

After ringing twice and not being able to get anyone to speak to me I asked their advice and they said to write in to... yes, you quessed it... the same place from where I had received the letter that had confirmed that the debt was to be written off over a month ago... HMRC PO Box 1000 Newcastle and no... I could not speak to the writer of the 17 Aug letter.

So I will have to write a letter attaching a copy of the one they sent to me confirming that they would be writing off the debt otherwise they may visit his house to collect an unpaid bill which is not due...of course I cannot charge for my time. Just because of their inefficiency.



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