Tax Penalties Archives - London Chartered Accountants Blog

I understand that just under 900,000 people missed the most recent income tax filing deadline of 31 January 2015. HMRC have announced that it is too costly to investigate reasons for missing Self-Assessment deadlines and that the £100 fine should therefore be cancelled if a reasonable excuse is given for cases under appeal. HMRC have indicated that this move is to allow them to focus more of their resources on tax avoidance and evasion rather than penalising large numbers of “ordinary people who are trying to do the right thing”.

HMRC then go on to point out that this is “part of our planned, proportionate approach to penalty appeals, particularly for small businesses and individuals”. Going forward HMRC intend to amend their systems so that they will be able to track patterns of behaviour and focus on those who persistently fail to pay or send their tax returns on time.

According to The Daily Telegraph, those people who fail to file their tax returns on time will escape a fine providing they have a reasonable excuse for being late which shows mitigating circumstances. There is suggestion that a reasonable excuse is one which is outside the control of the taxpayer and which stops them meeting a tax obligation. It is reasonable to assume that these excuses would include death of a loved one, an unexpected medical condition or a fire.

This announcement is welcome. A recent article in the tax professional press re-enforces the frustrations that tax practitioners face when dealing with the Revenue administrative machinery. In the case the article covered HMRC were seeking to penalise a community amateur sports club with a penalty of £1,278 and were not willing to back down. At the last minute they finally acknowledged that the club’s advice had been correct and the penalty was invalid. This was 3 days before a case management hearing.

I have also had the experience of HMRC’s bureaucracy machine being unwilling to back down. My client’s affairs were always up-to-date and he did not owe any tax. Due to a computer failing HMRC’s computer repaid almost £4k to my client which was not due to him. He immediately, and voluntarily, repaid it. This led to the Revenue issuing penalties and interest on the taxpayer. Initially HMRC would not back down about those charges. After many months and different individuals at HMRC being involved, they accepted their error and revoked all but a small part of the penalty. Even while the matters were under discussion, HMRC’s computer automatically referred the disputed sum to external debt collectors. HMRC informed us that this was standard practice and also informed us that they could not dis-instruct the debt collectors until such time as the Revenue’s computer showed the amounts being paid or waived. We finally got the agreement of all amounts to be waived with the exception of a very small sum which would have to be argued with a different team. That small sum was paid. This was not because it was necessarily due but rather to close the case. You can imagine that it was stressful for the client and a waste of both mine and HMRC’s time.

One would like to think that HMRC’s review of the automatic penalty regime would be expanded into other penalty provisions to help prevent the repeat of cases like those above. However given the importance of patterns of behaviour I shall still be encouraging my clients to meet all their deadlines.

So another World Cup match ends in penalties with the Netherlands suffering the curse of the English in last night’s game against Argentina, and I suppose it was almost inevitable that both teams would play a cat and mouse game after seeing what Joachim Low’s men did to both Brazil’s national team and its national pride the previous night.

And I can’t help thinking that penalties (of the fiscal kind) will be another inevitability for the future given the UK Government’s recent announcements to “Low”er (Sorry, I couldn’t resist that) the threshold for reporting Enveloped Dwellings from £2,000,000 to £500,000. This is part of the relatively new Annual Tax on Enveloped Dwellings regime (“ATED”)

In outline terms, the ATED rules require that high value residential property held within a corporate (or non-natural person) structure will be subject to a number of measures to combat anti-avoidance. These range from a higher rate of Stamp Duty Land Tax (SDLT) (15%) to the Annual Tax itself, assessed by reference to the valuation band in which the property sits.

In fact, “assessed” is the wrong word to use here because the ATED tax is actually based on self-assessment. It is up to the taxpayer, in this case most likely the property owner, to assess their liability and submit a return accordingly. Now the vast majority of my clients will be eligible for one of the various reliefs on the basis that they are either letting the property or developing it for resale, so does that get them off the hook?

Well, yes and no. Whilst they’ll have no tax liability they still have an obligation to file the return and that’s where penalties could come into play. Furthermore, the return appears at first glance to be an annual return but there is in fact an additional obligation to submit an ATED return 30 days after acquiring an eligible property, or 90 days after the creation of a new property. It’s worth adding at this point that a separate ATED Return must be completed for each individual Enveloped Property.

So back to penalties. The ATED penalty regime is heavy – a £100 fixed penalty for being late by a day, followed by a £10 per day fine for each of the next 90 days and then a further £300 once 6 months have passed and so on.

But let’s be practical, Enveloped Properties valued at over £2m are not that common and so one could say that at present the non-compliance risk for developers and investors, who let’s face it have a myriad of other things to contend with when acquiring properties or completing developments, is not so great.

However, next year the £2m threshold falls to £1m, and the year after it falls to £500,000. This gives an exponential increase in the number of ATED returns required, and inevitably an increase in the number of property owners falling foul of their filing obligations

And, just like all World Cup games that end up in penalties, it will seem very unfair to those on the receiving end.