ADMINISTRATION OF TAX

Waiving Interest and Surcharges for Those Affected by National Disasters

HMRC are to be given power to allow interest and surcharges payable to them to be waived by secondary legislation in the context of events designated as national disasters.

The measure will have effect from the date that Finance Act 2008 receives Royal Assent but the power will first be used, with retrospective effect, to waive interest, etc. as a result of the severe flooding that affected the UK in June and July 2007.

Penalties for Incorrect Returns and Failure to Notify a Taxable Activity

Legislation will be introduced in Finance Bill 2008 to extend the current HMRC powers across all the taxes, levies and duties administered by HMRC in order to:

• create a single penalty regime for incorrect returns; and
• cover penalties for failing to register or notify HMRC of a new taxable activity.

The penalty regime for incorrect returns is expected to apply to return periods commencing after 31 March 2009 where the return is due to be filed after 31 March 2010. Penalties for failure to notify are expected to have effect for failure to meet notification obligations that arise after 31 March 2009.

For incorrect returns, there will be no penalty where a taxpayer makes a mistake but there will be a penalty of up to:

• 30% for failure to take reasonable care;
  
• 70% for a deliberate understatement; and
  
• 100% for a deliberate understatement with concealment.

Where a return is incorrect because a third party has deliberately provided false information or deliberately withheld information from the taxpayer, with the intention of causing an understatement of tax due, there will be a provision allowing a penalty to be charged on the third party.

For failure to notify a taxable activity there will be no penalty where there is no tax and/or NICs unpaid as a result or where the taxpayer has a reasonable excuse for the failure. Otherwise there will be a penalty of:

• 30% of tax unpaid for non-deliberate failure to notify;
  
• 70% of tax unpaid for a deliberate failure to notify; and
  
• 100% of tax unpaid for a deliberate failure with
  concealment.

All penalties will be substantially reduced where the taxpayer makes a disclosure, more so if this is unprompted.

For Class 2 NICs, the provisions will replace the fixed penalty of £100 for notification more than three months after starting self-employment with a behaviour-based penalty.

Compliance Checks

The rules for checking that businesses and individuals have paid the correct amount of IT, CGT, CT, VAT and PAYE or claimed the correct reliefs and allowances are to be reformed.
There will be three elements:

• the alignment and modernisation of record keeping requirements;
  
• new inspection and information powers; and
  
• the alignment and modernisation of time limits for making tax assessments and claims.

Information powers and penalties for failure to comply with these obligations will have effect after 31 March 2009. Time limits for making assessments and claims will need a transitional period and so will become fully operative after 31 March 2010.

Payments, Repayments and Debt

Measures will be introduced to make it easier for taxpayers to pay what they owe on time and for HMRC to tackle those who pay late or not at all. The three changes to the current law will:

• enable HMRC to introduce a credit card payment service (from Autumn 2008);
  
• allow HMRC to set the repayments it must make to individuals and businesses against the payments it is owed by them (from the date of Royal Assent to Finance Act 2008); and
  
• modernise and align HMRC’s debt enforcement powers to collect unpaid sums by taking control of goods in England and Wales (in line with the appointed day for Tribunals, Courts and Enforcement Act 2007, Sch 12) or by taking action through the civil courts (from the date of Royal Assent to Finance Act 2008).

Indirect Taxes: Increase in Limit for Correction of Errors

The limits below which a business may adjust a current return to reflect errors on previous returns are to be increased. The revised limits take effect in relation to accounting periods
commencing on or after 1 July 2008.

The revised limits, which apply to Value Added Tax (VAT), Insurance Premium Tax (IPT), Air Passenger Duty (APD), Landfill Tax (LFT), Climate Change Levy (CCL) and Aggregates Levy (AGL), are as follows:

• VAT, LFT, CCL and AGL: the greater of £10,000 and 1% of net VAT turnover (Box 6 of the VAT return) for the return period, subject to an upper limit of £50,000; LFT, CCL and
  AGL taxpayers who are not VAT registered will have a single limit of £10,000;
  
• IPT: the greater of £10,000 and 1% of net IPT turnover (Box 10 of the IPT return) subject to an upper limit of £50,000;
  
• APD: the greater of £10,000 and 1% of the duty due, before adjustments from previous periods, subject to an upper limit of £50,000.
  

The relevant regulations will be amended by statutory instrument.