Sea-change needed to encourage tax compliance

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HMRC has been urged to overhaul its much-maligned approach towards tax penalties, by creating a clear distinction between innocent errors and wilful neglect.

The Association of Taxation Technicians (ATT) has become the latest tax body to throw its hat into the ring and criticise the Revenue’s current regime. It comes after the Low Income Tax Reform Group (LITRG) branded the system “nothing short of oppressive.”

ATT’s intervention is in response to HMRC’s consultation on ways to bring penalties into line with the increasing digitisation of its services. The group claims the Revenue should understand that uncharacteristic mistakes require a different response to persistent failure.

As part of its submission, ATT urged the taxman to increase the use of suspended penalties. It said the measures, first introduced six years ago, are still not being routinely considered – even though doing so may incentivise individuals to comply in the future.

Natalie Miller, ATT’s president, claimed that the current regime could cause resentment of the tax system. She argues it makes sense to use suspended penalties more, even if there is just a slim chance that people will comply.

The group welcomed HMRC’s review as a “much-needed opportunity to consider how the various penalty regimes can be improved.” It claimed the Revenue was right to encourage a culture based on compliance rather than fines.

ATT tabled more than 20 recommendations and suggestions in total, ranging from the introduction of tax awareness courses to bringing VAT default surcharges into line with other late payment regimes.

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What do you think of HMRC’s current system? How, if at all, do you think it should be reformed? Join in the discussion on Twitter, or leave a comment below.