RESPONSE TO HMRC DISCUSSION DOCUMENT: THE SIMPLIFICATION OF REGULATORY PENALTIES
1Introduction
1.1The Association of Accounting Technicians (AAT) is pleased to comment on the issues raised in this HMRC Discussion document (the Document) “Simplification of Regulatory Penalties.” The Documentseeks views on whether there is merit in the simplification of the regulatory penalties untouched by the review of powers, deterrents and safeguards and changes in Schedule 24, FA 2007, Schedule 41, FA 2008, Schedules 55 & 56, FA 2009. Detailed opinions are not asked for at this stage but rather whether there is benefit in simplification of the remaining penalties as a prelude to a full formal 12 week consultation to be published in the summer of 2011. This reply gives the view of the AAT on the questions posed in the Discussion Document.
1.2We have over 49,000 full and fellow members and 68,000 students and affiliate members worldwide. Of the full and fellow members, there are approximately 3,300 Members in Practice who provide accountancy and taxation services to individuals, not for profit organisations and the full range of business types.
1.3The AAT is a registered charity whose objects are to advance public education and promote the study of the practice, theory and techniques of accountancy. In pursuance of those objects the AAT provides a membership body. We are participating in this consultation as part of our contribution towards the public benefit of achieving sound and effective administration of taxes. We also feel that the issues raised in this discussion paper will affect our members, whether they are in practice or work in industry.
2. Q. Do you agree that it is now sensible to consider the use and effectiveness of these penalties?
2.1 The introduction to the Document refers to the legacy of HM Revenue & Customs (HMRC), derived from separate penalty legislation in the former Inland Revenue and HM Customs & Excise. In addition there are the miscellaneous industrytaxes and levies for which HMRC is now responsible. Appendix A of the Document lists 17 separate “tax regimes” which the AAT would consider customer types. These are
Tax Regime or Customer Type Approximate number of penalties
Aggregates5
Any Tax Matter2
Capital gains tax25
Child trust Fund1
Construction Industry Scheme5
Climate Change Levy7
Corporation tax25
Customs65
Excise62
Income Tax75
Inheritance Tax7
Insurance Premium Tax8
Landfill tax4
Petroleum Revenue Tax2
Stamp Duty10
Tax Credits2
VAT12
The AAT considers some of these taxpayer groups are quite distinct from each other and require their own separate penalty regime. For example, there is anethical difference between an individual who is late in filing a personal tax return and the use of marked oil (signifying relief from full petroleum duty) in a road vehicle or the misuse of a distiller’s license. Against this background one would expect differing penalty regimes.
2.2 Nevertheless, the vast list of penalties set out in Appendix B is overwhelming – 250 penalties in over 30 different pieces of primary legislation – and the AAT agrees with the need to reorganise and reduce the number, by simplification within groups and where possible alignment, while maintaining separate regimes or the various broad customer types. Even so, comparisons between regimes cannot be ignored. The document identifies in paragraph 2.1 that “there islittle consistency in terms of the level of penalty and severity of the breach; acts that have a similar outcome in two different regimes may result in significantly different penalties.” The AAT agrees that any consultation needs to review these inconsistencies including the case for repealing penalties which are no longer used. Also as many of thetax regimes relate to specialised industry types, we would recommend consultation with the particular industry bodies, as part of the main consultation in the summer of 2011.
2.3The Document raises the point (in paragraph 2.3 et seq.) of the different types of penalty applicable across the obligations – tax-geared, not exceeding, fixed and daily penalties. We consider that the variety of these penalty types is not necessarily a problem, and indeed can provide flexibility. Nor was such a mixture found to be problematic when penalties were considered under the review of powers, deterrents and safeguards. An example is at paragraphs 39 and 40, Schedule 36, FA 2008 where a standard fixed penalty is followed by daily default penalties.
2.4The Document at paragraph 2.6 finds as inequitable that standard penalties may be applied to different sized companies. The AAT considers that, in the personal sector, Section 93 Taxes Management Act 1970 (TMA) is flexible enough to be effective over the range. S93 (2) charges only a £100 penalty for failure to meet the 31 January filing deadline,yet tax teams in the accountancy profession prioritise all to meet this deadline for clients, and the percentage across the taxpayer population who do not comply must be small by comparison, emphasising the effectiveness of the section . The effectiveness of this modest penalty would seem to contradict the finding of the Hampton review referred to at paragraph 3.3 of the Document.
Subsection 4 of Section 93 provides for a higher penalty after a further period and these effective penalties are computer generated reducing the cost of application.
2.5As regards the millionaire who is too busy to attend to his tax affairs, Section 93 (5) TMA provides for a tax geared penalty afteryet a further period. A purpose of this may be to eliminate any financial gain or benefit from non-compliance, with the Macrory review in mind.
2.6Section 93 TMA may be an example of a successful penalty section which could be considered for application to other taxes and which meets the criteria outlined in paragraphs 3.6 and 4.3 of the Document, to
- influence behaviour,
- be fair and proportionate,
- be effective and set out in legislation.
2.7Penalties with no link to tax liability are often required to maintain compliance with the administration of the regime. Fixed penalties are more relevant to such situations, but we would recommend a review of the appropriateness and levels of these.
3. Q. Are there areas of particular difficulties on which we should focus?
3.1As recognised earlier, the range of customer/industry groups with specialised taxes or levies which the enlarged HMRC has responsibility is considerable, ranging from Aggregates levies and Landfill taxes, Climate Change Levies to Petroleum Revenue Tax and Insurance Premium Tax. Most of these industries will wish to obey taxation legislation set by Parliament. There will, of course, be some who will fail to comply and for whom penalties are required. The objectives outlined in paragraph 2.8 of the Document - “the number and range of regulatory penalties makes it difficult for taxpayers to understand…ensuring there are “no surprises” for them in relation to their obligations and requirements” – must be applied to each of the specialist industries, which underlines why the AAT recommend that the various industry bodies are consulted.
4. Possible Options for Change
4.1As regards possible options for change, the AAT considers that the number of regulatory penalties be reducedby evaluating their use and relevance. Penalties identified for repeal are the data gathering penalties of Section 98 TMA (relating to a failure to comply with sections 13 to19 TMA)where these are overlapped by Schedule 36 FA 2008. Also, we note the proposal in paragraph 2.11 of the Document for a new schedule in addition to Paragraph 5 of Schedule 36.
4.2This review may be an opportune time to review (or revalorise) flat rate penalties which were set many years ago, and with the findings of the Hampton review in mind.
4.3Part 4 of the Document, Possible Options for Change seeks opinions on Option one and Option two.
4.4Option One – Fixed penalties. Paragraph 4.9 of the Document recognises the importance of simplicity and the range of businesses from large to small. That is why we suggested the recommendations in 2.4 and 2.5 of this Response to the Document.
We do accept the benefit in terms of cost and time to HMRC to reduce the number of discretionary penalties in favour of fixed penalties.
4.5Option Two – A New Single Provision. On perusal of table B of the Document one cannot fail to notice the similarity in amount of many of the fixed penalties.The AAT find merit in bringing together or reducing penalties scattered over the various pieces of legislation. The solution may be to standardise the rates of certain penalties, perhaps by tabulation in a similar method to Section 98 TMA, but keeping different industry type penalties separate, or to introduce a single standalone penalty in appropriate regimes.
4.6In commenting on methods One and Two, the AAT does not consider either of these to have exclusive value over the other, but that consideration should be given to the circumstances as set out in paragraphs 4.4 and 4.5 above.
5. Conclusion
5.1 In consideration of Next Steps, the AAT would summarise our views that:
1)the concept of simplification of regulatory penalties is definitely worthy of consideration due to the complexity and the sheer volume of these provisions scattered across the 30 different pieces of legislation
2)our views on the options are given in paragraphs 4.4 and 4.5 above
3)our reasons for consulting the various industry bodies would be to identify particular problems which each industry might have with the vast number of regulatory penalties and our expectations that these bodies would wish members to comply with legislative requirements, but are best placed to suggest simplifications relevant to their particular industries. Their response might not only relate to the level and type of penalty but also to the appropriateness of the obligation or whether the same information or requirement could be achieved by other means. Data gathering may be such an example.
5.2The AAT looks forward to the further consultation planned for the summer of 2011.
Con Kelly FMAAT