Administration Of Tax

HMRC Powers: Penalties for Late Filing of Returns and Payment of Tax

New penalties are to be introduced for late filing of returns and late payment of taxes, extending the penalty regime set out in FA 2009, Schs 55 and 56 to various indirect taxes. The taxes covered include VAT, insurance premium tax, aggregates levy, climate change levy, landfill tax and excise duties. The implementation of the penalties will be staged over a number of years and brought into effect by Treasury order.

Under the new rules, there will be an escalating series of penalties depending on the number of failures within a set penalty period. Further penalties will arise if there is a prolonged delay in filing returns or paying the tax due.

Failure to file a quarterly return by the filing date will trigger a penalty period of 1 year and an immediate £100 penalty. The fixed penalty will then escalate by £100 for each subsequent failure within the period, up to a maximum of £400, and the period itself will be extended to the first anniversary of the latest failure. Additional penalties of 5% of the tax on the return will be charged for continuing failure 6 and 12 months after the filing date. Penalties of up to 100% of the tax will be charged where the failure is intended deliberately to withhold information to prevent HMRC correctly assessing the tax.

Failure to pay tax due quarterly will also trigger a 1-year penalty period although no immediate penalty will apply. A second failure in the period will attract a penalty of 2%, a third failure a 3% penalty and further failures a 4% penalty. Again, the penalty period is extended with each failure. Additional penalties of 5% of the tax will be charged for continuing failure 6 and 12 months after the due date.

Similar penalties will apply in relation to monthly returns and payments.

The taxpayer may appeal against a penalty decision if he has a reasonable excuse for the lateness. Late payment penalties may also be avoided where the taxpayer has agreed a ‘time to pay’ arrangement with HMRC.

HMRC Powers: Excise Modernisation and Compliance Checks

The Government is to introduce legislation which will bring the compliance checking framework for excise duties into line with other duties and taxes. In particular:

  • the high-level rules for record-keeping will be aligned, detailed record-keeping rules will not be affected;
  • information and inspection powers will be updated;
  • the standard time limit for making claims will be increased from 3 years to 4 years;
  • the extended 20-year time limit for deliberate underpayment of excise duty will be retained, but the terminology used to describe the behaviours subject to it will be aligned with recent penalties legislation.

The record-keeping proposal and amendments to information and inspection powers are expected to have effect from 1 April 2011. The changes to time limits require a transitional period and will not become fully effective until 1 April 2012.

Tax Law Making

The Government has issued a 24-page discussion document entitled ‘Tax Policy Making: A New Approach’. This is intended ‘to improve the way tax policy is made’, and to support the objectives of predictability, stability and simplicity. The Government has also confirmed its intention to create an independent Office of Tax Simplification, and will announce further details shortly. It has also announced that it intends to impose ‘sunset clauses’ on regulations, under which they will cease to be law after 7 years unless Parliament has confirmed that they are still necessary and proportionate, or they were explicitly set to have a longer timeframe.