Advisers cry foul over ‘HMRC thinks’ penalties

Concerns were raised during the consultation on changes to the penalty regime
that the wording of draft rules often used the term ‘HM Revenue & Customs
think’. However, the wording has remained in the finance bill.

Advisers had warned that the term was too subjective and could even impinge
on human rights.

‘You can’t levy a penalty on something HMRC thinks happens,’ said Anne
Redston, of the CIoT.

‘If you’ve done something, or failed to do something then you have a fact,
but if they think something has happened how can you appeal?’

PricewaterhouseCoopers partner John Whiting said that everyone had objected
to the wording and expected changes would have been made to the bill. ‘The worry
is “HMRC think” is far too loose and arbitrary,’ he said.

Changes to the tax penalty regime, which will come into effect from the
2008/09 financial year, include penalties for taxpayers if they do not take
reasonable care to spot within 30 days that their tax adviser or inspector has
made a mistake calculating their tax bill.

Grant Thornton senior tax partner Mike Warburton said taxpayers should not be
expected to go through their entire returns to spot the mistakes of others.

He added that many of the changes to the regime were due to Customs &
Excise powers filtering through into the Inland Revenue following the merger of
the two departments. ‘Customs would assume we’re all smugglers – they just
haven’t caught us yet,’ he said.

‘The use of the phrase “HMRC thinks” in the penalties legislation does not in
any way make the criteria that had to be met before penalties are applied less
rigorous or more subjective,’ said an HMRC spokesman.

‘We are still required to act reasonably and issue penalties only where there
is good cause. It is fairly usual to include more ordinary phrases in
legislation to ensure the law is as clear as possible. All penalties are subject
to appeal to the commissioners who will require HMRC to prove that a penalty is
reasonably due.’

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