ADMINISTRATION OF TAX
Penalties for Late Filing of Returns and Late Payment of Indirect Taxes
Following three separate consultations, new penalties are to be introduced for late filing of returns relating to various indirect taxes and for late payment of such 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.
Under the new rules there will be an escalating series of penalties depending on the number of failures within a set penalty period. Failure to file a quarterly return by the filing date will trigger a penalty period of one year and an immediate £100 penalty. Increased fixed penalties will then apply to subsequent failures within the period, and the period itself will be extended accordingly. Additional penalties of 5% of the tax on the return will be charged for continuing failure six and twelve 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 one-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 six and twelve months after the due date.
Similar penalties will apply in relation to monthly returns and payments.
Offshore Tax Evasion
Legislation will be introduced in the Finance Bill to ensure larger penalties apply to those who fail to provide a full account of their offshore income tax or capital gains tax liabilities. These new penalties below will apply to tax periods commencing on or after 1 April 2011. Penalties for under-declaration of tax are determined by FA 2007, Sch 24 (penalties for inaccuracies in returns), FA 2008, Sch 41 (penalties for failure to notify) and FA 2009, Sch 55 (penalties for failure to make a return). Each Schedule provides for tax-geared penalties and such penalties are determined by the behaviour of the taxpayer and the quality of disclosure.
- Where the non-compliance occurs in a jurisdiction which has provision to exchange information on savings income automatically with the UK, the penalty percentages will be the same as those currently applicable in the Schedules that already exist for non-compliance arising in the UK.
- Where the non-compliance arises in a jurisdiction which has agreed to exchange information with the UK, but does not automatically share that information, the penalty percentages will be 1.5 times those set out in the existing Schedules.
- Where the non-compliance arises in a jurisdiction which has not agreed to exchange information with the UK, the penalty percentages will be double those set out in the existing Schedules.
Security for Payment of PAYE
The Finance Bill will introduce legislation to amend ITEPA 2003, s 684 so as to allow HMRC to issue notices requiring financial security from employers where payments of PAYE or NIC are seriously at risk. The amount of security will be set by HMRC in the light of the potential tax liability. The detailed arrangements for the security will be set out in regulations, which will provide a right of appeal against the imposition of the security and its amount. The draft regulations will be published on the HMRC website, and there will be a 12-week consultation period. Failure to provide security where required will be a criminal offence, which may lead to a fine of up to £5,000. It is intended that the operative date for this legislation will be 6 April 2011.
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 record-keeping and amendments to information and inspection powers will 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.