HMRC has confirmed that it is preparing to appeal against a decision from last year on tax penalties in which it was criticised for being unfair and, in fact, for using its penalty regime as a “cash generating scheme”.
HMRC had levied penalties on late filing of a PAYE end of year return P35, but on appeal by the company, the penalties were cancelled because HMRC waited several months before sending out notices, by which time the penalty had increased. The judge stated HMRC could not be seen to be acting fairly where it deliberately refrained from sending a penalty notice for four months or more, knowing that the effect would be to impose a minimum penalty of £500. As part of the ruling, the judge also commented that it should be a simple matter for HMRC to program its computers to send out the P35 penalty notices in May rather than September, so the fines did not automatically increase.
HMRC described the arguments as “out of kilter” with the law and so are preparing to appeal. HMRC holds that it has no specific responsibility to remind people to put in their returns or when a trigger point for a penalty may be imminent and cannot provide a general reminder service. It's view is that the UK tax system works on the principle that it is a taxpayer’s responsibility to comply with their tax obligations and HMRC is entitled to charge penalties where those obligations are not met.
The appeal will be watched with interest and I have to hope that the ruling again favours the taxpayer or HMRC will be able, as it did last year, to issue penalties only after they have reached a substantial level.
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Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.
Email Cathy Corns
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