ATT responses to HMRC consultation on reforming behavioural penalties

The Consultation sought views on options to improve the financial penalties that apply when inaccuracies are found in returns and documents submitted to HMRC and where taxpayers do not meet their obligations to notify HMRC of circumstances that affect their tax liability.

In the ATT response, we considered that there were opportunities to simplify the current penalty regimes by:

• eliminating the minimum 10% penalties currently applied to inaccuracies disclosed after three years and to failures to notify disclosed after 12 months, in cases of non-deliberate behaviour;
• aligning onshore and offshore penalties; and
• replacing suspended penalties for careless errors and omissions with a ‘Must Improve’ letter.

We support HMRC looking at new and improved ways to modernise and simplify the penalty system, but we were not in support of the alternative legislative process put forward in the Consultation. We had concerns that:

• the transitional costs of introducing new legislation;
• moving to new processes for administering and dealing with the penalties; and
• educating taxpayers on any new sanctions or safeguards

would mean that the delivery costs would outweigh any opportunities for simplification. Whilst the change would introduce a new misdeclaration/failure to notify penalty and a civil evasion penalty, we did not believe that these changes were radically different from the existing penalty systems to justify the overhaul.