Weekly Tax Update - Februrary 9th, 2015

1. General news

   1.1 Consultation: penalties and digital communication with HMRC

   HMRC has issued a discussion document asking for feedback by 11 May 2015 concerning how tax penalties would work as the use of digital communication with taxpayers increases. The document is aimed at setting out objectives and identifying options. As HMRC increases the digitisation of its communication with taxpayers, the OTS has highlighted to HMRC that the way the penalty regime operates will need to be tailored to new digital processes, with as much as possible automated.

   According to HMRC, penalties play a role in influencing behaviour, in emphasising that non-compliance does not pay, and fall into three broad categories:

   those aimed at penalising a failure to meet a time-bound obligation (eg submitting returns on time); those aimed at penalising a failure to meet a regulatory obligation (eg notifying taxable status); behavioural-based penalties (eg for submitting inaccurate returns and documents). The paper sets out the concern that increased digitisation could lead to large-scale automated issue of penalties, potentially reducing taxpayers' motivation to comply, particularly where the penalties are small and therefore resource-intensive for HMRC to follow up or deal with taxpayer reaction. There is also a concern that penalties may be disproportionate where based on a percentage of tax, if filing or payment is uncharacteristically late by a very small period. Mention is made of the VAT default surcharge system which permits a warning to be issued rather than a penalty in cases of initial failure to comply, while successive failures attract progressively higher penalties.

   Possible reforms for the way penalties are administered include:

   a progressive system similar to penalty points for motoring offences, so that initial financial penalties are avoided, but more substantial penalties then apply for more serious failures or for persistent non-compliance; a personalised digital tax account showing in one place all the taxes due from a taxpayer may require a move away from applying penalties on a tax-by-tax basis and towards a penalty system that is based on the overall position of the customer. This might mean there are implications for the role of interest. www.gov.uk/government/uploads/system/uploads/attachment_data/file/400211/150130_HMRC_Penalties_a_Discussion_Document_FINAL_FOR_PUBLICATION__2_.pdf

   1.2 Scottish tax measures

   SSI 2015/36 provides that where a payment is made to Revenue Scotland by credit card in respect of tax, interest or...