HMRC’s new proposals are intended to be fairer to the taxpayer by changing “the way that penalties are applied” under Self Assessment. They have acknowledged that the current regulations make “no distinction between a customer who missed a deadline by a day and someone who has made no attempt to comply at all”.
The current self-assessment fines are hefty sums.
- There’s the much publicised automatic £100 fine for missing the midnight on 31st January deadline. For the last 3 years this has been imposed on those who didn’t even owe any tax!
- There is cumulative £10 per day for the next 3 months, with a cap of £900.
- Once 6 months have gone by, you will be penalised whichever is the larger amount between £300 and 5% of your total bill.
- After 12 months, the latter amount is added on top of your existing fines.
This welcome change of attitude seems to focus most on the automatic £100 late fine, which means that whether you are 1 day or 3 months late you pay the same amount. The Tax Office is considering a “progressive system” which eliminates first offence fines and punishes repeat non-compliers more severely.
This recognises the legitimacy of research which concluded that if fines are perceived to be unfair “this can lead to increased non-compliance” because they “undermine people’s natural motivation to comply”. Not exactly a ground-breaking revelation; but this would save thousands of self – assessment taxpayers the late filing penalty, as well as counteracting prevailing assumptions that we are all trying to avoid paying our fair share of taxes.
As part of this new proposition, HMRC are also considering their definition of ‘reasonable excuses’ for missing the deadline. At the moment you will only be exempt from the fine if you have been a victim of fire, had an unplanned stay in hospital or your spouse dies. A large number of people had to submit their very first self – assessment returns last year due to child benefit cuts for higher rate taxpayers. Currently there is no consideration for finding your first filing tricky, forgetting the deadline or just needing more time to finish the form accurately. HMRC has said that their understanding of acceptable reasons “may need updating to better support those genuinely wanting to comply”.
Member of the Association of the Chartered Certified Accountants, Chas Roy-Chowdhury has an interesting comment, “We seem to have lost sight of the fact that the tax payer is the unpaid administrator of tax compliance and we should be looking to smarter ways of dealing with late filers”. He feels that this would rectify the present system of penalties that are simply government income, gathered unethically.
Stuart Philips of The Private Office (a wealth management firm) agrees with the idea of “targeted fines for those who are intentionally choosing not to comply with self-assessment”. But he does advocate caution as “the removal of the automatic fine could reduce the motivation for people to ensure their returns are submitted on time”.
It is a refreshing, positive change to see HMRC policy makers saying, “We want to consider whether we could better differentiate between deliberate and persistent non-compliers and those who might make an occasional error”. Maybe they could go as far as a reward system instead of punitive penalties. Perhaps a £100 automatic reduction if you meet the deadline next year….?!
