HMRC Penalties: a discussion document

As HMRC reviews and improves how we serve our customers, we are also exploring the way that we currently apply penalties when people fail to meet their tax or entitlement obligations.

We know that the vast majority of customers meet their obligations in full and on time, and that penalties are only applied to a small minority of people and businesses.

We want to make sure our approach works as well as possible. This is why we want to consider whether we could better differentiate between deliberate and persistent non-compliers and those who might make an occasional error for whom alternative interventions are more appropriate.

A modern tax system
We aim to be an effective, efficient and impartial tax and payments authority. We help the honest majority to get their tax right and make it hard for the dishonest minority to cheat the system.
Part of helping the honest majority involves delivering on the Government’s commitment to make the UK tax system as user-friendly and efficient as possible, which also means making tax policy simpler and easier for people to understand.
To do this, we are improving how we work, introducing new digital services that make it easier for customers to get things right first time. We will put customers at the heart of everything we do by moving away from services that are based around traditional tax regimes to services designed around our customers.

Digital services
Our digital plans will transform the way we operate and serve our customers. One example of how we plan to do this involves a personalised tax account for customers, so we can help make it simpler, quicker and easier for them to pay the right tax at the right time.

Our digital services for our customers will:

be easy to use, convenient and personalised for individuals, businesses and
agents
promote digital take-up and voluntary compliance by designing for customer needs
use data to help customers avoid errors through pre-population
provide assistance in using or accessing our services for those who need it
allow us to consult our customers on policy proposals and changes so that we can improve them.

Compliance
Improving our services means changing the way we think about compliance.

New technology will enable us to deal with the vast majority of compliant customers – and those who try and bend or break the rules – by using more accurate, up-to-date data that gives us a more ‘real time’ view of a customer’s tax and benefits affairs.

By introducing services that make it easy for customers to get things right, we will reduce the risk of errors – saving them and us time and money.

Our digital services will also give us access to more and better data about our customers, which will enhance further our compliance activities.

We will be able to look at a customer record across all our tax regimes and previous tax periods, providing us with an insight into whether that individual or business poses a tax risk.

This more targeted approach means we can then focus our compliance activity and expertise on those determined to bend or break the rules.

Penalties
Penalties are applied to encourage taxpayers to comply with their obligations, to act as a sanction for those who don’t and to reassure the compliant majority that they will not be disadvantaged by those who don’t play by the rules. We don’t use penalties as a way of raising revenue, or to offset our running costs. In essence, we want compliance, not penalties.

Aim of this discussion
It’s important that we design tax policy for a modern, digital world and make the most of the opportunities this technology provides. As we change the way in which we operate, we believe we will need to change the way in which we apply penalties.

This discussion document looks at how we might be able to do this. We want feedback from individuals and businesses so it can influence our thinking at this early stage.



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