Taxation by fierce intimidation

I have generally been supportive of self-assessment. I have penalty charges. consistently made excuses for the many Inland Revenue mistakes that have arisen and urged people to accept that teething troubles were bound to occur and not to damn the system for such inevitable problems.

But even I would not attempt to justify the fiasco of penalties for late returns.

A Revenue press release of 3 February told us around 900,000 people had missed the self-assessment deadline, Not all of those would have to pay the full penalty of #100, and the penalty would not exceed the tax due.

I do not know how many penalty notices were issued, but it must have been many times the number where penalties were actually exigible. Why?

In the past, penalties were imposed when a taxpayer did something wrong.

The Revenue’s normal practice was first to identify the wrongdoing and then to obtain the taxpayer’s agreement that a penalty was exigible before charging the penalty.

What seems to have happened is that local districts supplied the Revenue’s computer centre with a list of taxpayers for which the district’s records showed the return as outstanding and the computer centre sent out penalty notices.

Holes in the system

No attempt seems to have been made to check whether a penalty was due.

In law, the penalty cannot exceed the outstanding tax – as the Revenue press release acknowledged. To send out a demand for #100 when a lesser sum, or even nothing, was due seems unlawful and displays a contempt for parliament. It has also caused a great deal of unnecessary work both for the Revenue and taxpayers and has seriously undermined the credibility of self-assessment.

Many of the Revenue’s mistakes in processing returns would not have been obvious to the average taxpayer. A return delivered to a local tax office on 31 January, for example, may have received a penalty notice because the Revenue did not allow time for such returns to be forwarded to the appropriate district.

Many taxpayers’ statements that I have seen show not one, but two, #100 penalties.

Why was the computer not programmed to flag up such obvious errors? Does this suggest the whole system is unreliable? Most accountants are appealing against penalties which are excessive or where the accountant believes there is a reasonable excuse. In such circumstances, the Revenue holds over the amount – but where they have posted two penalties they sometimes hold over only one.

I find it hard to believe the Revenue made the incredibly silly decision to issue penalty notices before processing the returns. I can only imagine it was a ministerial decision. After all, #90m of penalties makes the performance of Treasury ministers for 1997/1998 look very good, and people probably will not notice if most of it has to be written back in 1998/1999.

New Labour, New Bullies?

I have little doubt that many elderly and disadvantaged taxpayers were frightened to receive penalty notices. I suspect most paid up even though in many cases the penalty was not due. Old Labour used to care about such people. Perhaps some of the new intake of MPs still do. If so, they ought to insist on the Public Accounts Committee calling Dawn Primarolo to account for having put the frighteners on so many innocent citizens.

Someone told me earlier in the year that his local tax district was not processing returns received after 30 September until after 31 January, because it wanted to teach people to submit them before that date this year. Never mind that parliament had set a 31 January deadline – people must work to the Revenue’s rules and not expect to be allowed their statutory rights.

I have just received a letter telling me that a penalty has been reduced to nil because no tax was owed at 31 January and that ‘the appeal has therefore been closed without prejudice’.

I always thought appeals could only be settled under section 54 or determined by the Commissioners.

Is this another example of the Revenue making up its own rules as it goes along? Or is it that,under the Revenue’s new ‘non-confrontational’ approach, it sticks in the gullet to say: ‘Sorry, we got it wrong. Section 93(7) provides that the penalty is nil’.

Robert Maas is a partner with Blackstone Franks.

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