HMRC consults on its enquiry and assessment powers and penalties

Thursday, 22 February 2024
HMRC has published a call for evidence on its enquiry and assessment powers, penalties and safeguards.
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Proposed reforms include replacing HMRC’s current enquiry and assessment powers with a single set of powers across all taxes and aligning the penalty system across different tax regimes. It also discusses the possibility of simplifying specific penalties and whether an escalation system could be introduced for repeated non-compliance.

As well as aligning enquiry and assessment powers across the various taxes HMRC administers, the paper proposes that the tax consequences resulting from non-compliance in relation to one tax could be corrected across all affected periods and tax regimes. HMRC also wants to be able to send statutory notices to taxpayers and agents digitally, although it undertakes to provide alternative provision for the digitally excluded.

Penalties for late filing, late payment, failure to notify and inaccuracies would be aligned more closely across different tax regimes. The determination of penalties would also be simplified by removing the impact of the taxpayer's behaviour in the calculation, although the paper also suggests using the taxpayer's income to set the amount of fixed penalties. The size of fixed penalties would also be increased at regular intervals, perhaps every five years.

A further suggest in the consultation is that penalties could be suspended for the first non-deliberate or careless failure by a taxpayer, as is the current policy regarding the Trust Registration Service.

There is little in the consultation document on safeguards for taxpayers. It focuses purely on alternative dispute resolution, appeals to the First-tier Tax Tribunal and statutory review. HMRC proposes to mandate the use of statutory reviews in certain circumstances, typically those involving late-filing penalties, at the same time as withdrawing their availability where it considers there is no reasonable ground for appeal or where the taxpayer used an avoidance arrangement. HMRC would also like to make greater use of digital appeal routes.

The call for evidence is open until 9 May 2024.

Separately, HMRC has decided how it will follow up its recent consultation on simplifying its income tax services. It plans to move some paper outputs to digital by default, improve systems to allow tax codes to be updated more quickly and complete a review of the criteria it uses to determine who needs to file a tax return.

Secondary legislation is to be introduced to increase the use of digital channels and reduce phone and post contact, the Institute of Chartered Accountants in England and Wales (ICAEW) notes. These changes include allowing HMRC to send specified correspondence to taxpayers digitally by default, unless they elect otherwise. It would require taxpayers to provide up-to-date electronic contact details to HMRC.

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