HMRC considering changes to the way they charge penalties

Readers might be interested to know that HMRC have been consulting with various parties, including the accountancy profession, regarding the way in which they charge penalties to taxpayers who don’t meet their filing obligations. We have listed below a number of the conclusions HMRC have reached thus far.

 HMRC’s published responses:

 We recognise the need to distinguish between the vast majority of customers who are generally compliant and those who are not.

At the same time the penalty system needs to work effectively to encourage those who make one off errors back into full compliance, and counter the activities of careless or intentionally non-compliant customers. So the ultimate goal for the future is to charge fewer penalties, and for penalties to be well-targeted where we do charge them and to take account of the customer’s compliance history across all of the taxes they are involved with.

That, together with automating and simplifying the penalty process as much as possible, should release resource within HMRC to focus its attention on tackling serious non-compliance.

 Late filing and payment

Time based failures to file tax returns or pay by particular dates relate to high frequency, mechanical obligations. They tend to produce large volumes of low-value penalties with a high incidence of successful appeals and they generate significant levels of contact between customers and HMRC.

 Reform of these penalties will be our first priority.

 In developing a new model for late filing penalties we will explore options


  • not charging a penalty where no tax is due and where the circumstances for not charging are appropriate;
  • not charging a penalty where the period of lateness is very short;
  • not charging a penalty for the first default;
  • taking account of the customer’s compliance history across all of the taxes they are involved with;
  • increasing opportunities for and use of mitigation in recognition of the circumstances surrounding the default and HMRC’s desire to encourage future good compliance; and
  • using notifications to remind the customer that their return is due (before the due date is reached) and draw their attention to the default and its consequences for penalty purposes (after the due date has passed).

 While we are currently keeping all of these options in consideration the new penalty model we consult on might not contain all of them.