ADMINISTRATION OF TAX
Review of HMRC Powers, Deterrents and Safeguards: Payments, Repayments and Debt
The following provisions will be introduced:
- instalment payment schemes will be available to individuals and companies who either wish to spread their tax payments over time or who have not been able to pay the tax they owe on time; and
- HMRC will have a third party information power to require businesses and companies to supply contact details for tax debtors with whom HMRC have lost contact.
The introduction of managed payment plans (MPPs) is intended to help taxpayers with their cash flow by allowing them to spread their income or corporation tax payments equally over a period straddling the normal due dates. The plans will be voluntary and late payments under the plan will not be liable to interest or penalties. The relevant legislation will have effect on and after the date of Royal Assent to the Finance Act, but in practice, MPPs will not be introduced before April 2011 to allow time for HMRC to make changes to their computer and accounting systems.
HMRC will be able to collect small tax debts through the PAYE system, thus allowing taxpayers to spread their debt repayments and reducing HMRC’s collection costs. Existing safeguards which limit the amounts that can be collected in this way will be preserved. The new system is likely to begin from April 2012.
New Reporting Requirements for Tax Defaulters
From a date to be announced, HMRC will require those who have incurred a penalty for deliberate understatement in respect of tax of £5,000 or more to provide more information about their tax affairs for up to 5 years, to ensure they have proper systems in place to be able to make a correct tax return. They will be required to submit returns showing more detailed business accounts information, detailing the amount and nature of any balancing adjustments within the accounts.
New Offshore Disclosure Opportunity
The Chancellor has announced a new disclosure opportunity (NDO) for UK residents with unpaid tax connected to an offshore account. The NDO will run from autumn 2009 until March 2010 and taxpayers who take up this opportunity will be expected to pay the tax due, together with interest and a penalty. The level of penalty which will apply will be announced before the scheme starts, but is likely to be lower than that which applies under the normal rules.
HMRC are also seeking to issue notices to financial institutions requiring them to provide information about offshore account holders.
Reclaiming Income Tax, Capital Gains Tax and Corporation Tax Overpayments
The rules relating to error and mistake relief will be amended, with effect for claims made on or after 1 April 2010, as follows:
- the requirements that the overpayment must be the result of a mistake in a return and that it must be made under an assessment will be removed;
- the current restriction on the right of appeal will be removed – claimants will be able to appeal to the courts; and
- the grounds and time limits for a claim will be set out.
Currently HMRC must determine what amount, if any, is just and reasonable to repay and no repayment will be made where the return followed the general practice at the time it was made, or where the mistake was governed by another statutory claim. Under the new rules, HMRC will only be liable to repay an amount where it is provided for by legislation, and the claimant will be able to determine the amount to be repaid, subject to HMRC’s right to enquire into the claim within the enquiry window.
Penalties for Late Filing of Returns and Late Payment of Tax
A new, aligned penalty regime will apply to the late filing of returns and late payment of tax for IT, CT, PAYE, NIC, the construction industry scheme (CIS), stamp duty land tax, stamp duty reserve tax, IHT, pension schemes and petroleum revenue tax. The rules provide for a proportionate response, ranging from removal of penalties where a time to pay arrangement has been agreed to significantly higher penalties for prolonged and repeated delay. Penalties will apply whether the obligation is annual or occasional. The regime will not apply to tax credits.
A large number of different penalty and surcharge regimes which currently apply and which are specific to individual taxes, will be repealed. Key elements are as follows.
Penalties for late filing:
- a fixed penalty due immediately after the filing date whether or not the tax has been paid;
- daily penalties of £10 per day, for a maximum of 90 days for returns that are more than 3 months late;
- penalty of 5% of the tax due for prolonged failures; l higher penalties of 70% of the tax due where the failure continues after 12 months and information has deliberately been withheld.
Penalties for late payment:
- 5% of the amount of tax unpaid 1 month after the due date;
- further penalties of 5% of any amounts still unpaid at 6 and 12 months;
- late payment penalties may be suspended where the taxpayer agrees a time to pay arrangement with HMRC.
There are similar penalties for late filing of CIS returns and for late payment of taxes and deductions collected through the PAYE system.
Taxpayers will have the right of appeal against all penalties and there is explicit provision for an appeal on the grounds of reasonable excuse. A penalty does not have to be paid before an appeal can be made.
Implementation of the new regime will be staged over a number of years, starting with penalties for payment of in-year PAYE from April 2010. Treasury orders will specify the date from which the provisions have effect.
The current range of different interest regimes for overpaid and late paid tax will be replaced by a single harmonised regime for all the taxes and duties administered by HMRC. For those taxes where HMRC currently charge and pay interest, rates will be aligned by Treasury order which will have effect shortly after Royal Assent. Interest on late payments of in-year PAYE is expected to be introduced, using a risk-based approach, from April 2010. Implementation of harmonisation requires changes to HMRC’s computer systems and will be staged over a number of years.
Interest on late paid tax will be charged from the date that tax was due to be paid until the actual date of payment and HMRC will pay interest on tax overpaid from the date it was due to be paid (or actual date of payment if later) until the date of repayment.
The rate of interest on late paid tax will differ from that on overpaid tax, but for each there will be a single rate of simple interest, and regulations will establish the basis for calculating and applying the rates.
Rates will be implemented automatically based on the Bank of England base rate, and changes to rates will be made within 13 working days after any change in the bank rate.
Quarterly instalments payments (QIPs) for companies will be outside this scheme and different rates will continue to apply (although alignment will apply).
HMRC will be required by legislation to prepare and maintain a charter which will set out the standards of behaviour and values to which HMRC will aspire in dealing with taxpayers. They will also be required to report, on an annual basis, on how well they are meeting those standards. The charter must be in place by 31 December 2009 and HMRC propose to launch it by the autumn.
The existence of a charter has been the subject of consultation over some months and it was confirmed in November 2008 that this would be given legislative backing.