Draconian new tax penalty regime will undermine legal protection for taxpayers
23rd June, 2008
Titles that covered this article include Daily Telegraph, 2nd September 2008 and The Guardian, 25th August 2008.
Draconian proposals announced by HM Revenue & Customs (HMRC) for more frequent and harsher penalties for late filing of tax returns and late payment of taxes will fundamentally undermine legal protection for taxpayers, warns our tax experts1.
In a consultation document (published 19/06/08) HMRC proposes daily fines on taxpayers who fail to file their returns on time without the prior authorisation of the General or Special Commissioners which it requires at present.
It also proposes penalties for late filing as a percentage of the tax owed up to 100%, which would allow HMRC to claw in significantly more than the surcharge system currently in operation in which HMRC can levy two charges of 5% of the tax owed on top of interest.
Roy Maugham, Tax Partner, at our London office, comments: “These are hugely draconian proposals that would allow the Treasury to unjustly enrich itself at the expense of individual taxpayers. The banks have been criticised for their unfair charges, but if the banks shouldn’t operate in this way, why should HMRC?”
“This is just the latest assault by HMRC in its constant push to enlarge its powers at the expense of taxpayers.”
“Permitting HMRC to issue daily fines without authorisation from the General or Special Commissioners would remove a vital legal protection for taxpayers against the arbitrary use of power. Regardless of whether taxpayers could appeal, the balance is shifted firmly in HMRC’s favour, and would inevitably result in greater use of daily fines.”
“Allowing HMRC to set penalties for late filing up to 100% of the tax owed is quite extraordinary when you consider that 100% penalties are currently levied in fraud cases, which involve deliberate deception.”
He adds: “Interest charges on late payment of tax are already significantly higher than interest paid to taxpayers on overpaid tax. If HMRC is allowed to charge 30% on late tax, it seems only reasonable it should pay taxpayers 30% on overpaid tax when there is an equivalent delay in making repayments.”
The consultation document also sets out plans for treating taxpayers who repeatedly file or pay late differently from occasional late filers or late payers. HMRC suggests higher penalties the second or third time a taxpayer files or pays late.
Summary of key proposals:
- Removal of the authorisation required from the General or Special Commissioners for HMRC to issue daily penalties
- An additional fixed penalty for late filing one month after the due date (in addition to the £100 fixed penalty already issued on or shortly after the due date)
- Tax-geared penalties of up to 100% of the tax owed for late filing
- Fixed penalties for late or non-payment of tax on or after the due date (currently fixed penalties of £100 are only issued for late filing of tax returns)
- One or two months after late tax is due tax-geared penalties, which would be a percentage of the tax owed
- Higher levels of penalties for taxpayers who repeatedly file or pay tax late
1 'Meeting the obligations to file returns and pay tax on time’.
http://customs.hmrc.gov.uk/channelsPortalWebApp/downloadFile
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