Jane
Kennedy: To prevent penalties from becoming a barrier to
people coming forward when things have gone wrong, there are
substantial reductions in penalties for disclosure by taxpayers.
Paragraph 13(5) of schedule 41 says that if a person comes forward
unprompted within 12 months of tax becoming unpaid as a result of a
failure to notify, the penalty may be reduced to nil. That involves a
date that is identifiable to the taxpayer, their advisers and HMRC, and
it provides clarity on how long the additional reduction will apply.
That is important to encourage people to come forward to HMRC early,
and was amended in line with suggestions that were made during
consultation. It means that someone who starts a business in one year
and delays going to an accountant to sort out their tax until just
before the following 31 January deadlineI can
imagine that all the work of setting up in business could, on occasion,
lead to that happeningwould still be able to escape a
penalty.
The hon.
Gentleman says that he has heard representations that it is a
hopeless taskthat phrase was usedtrying
to persuade HMRC of a reasonable excuse. HMRC has made it clear that a
person who had reasonable grounds for believing that an obligation to
notify did not arise will have a reasonable excuse. That and other
matters of interpretation will be published in HMRC guidance. If there
are clear examples of HMRC not applying that, I will be happy to
consider the examples. Let me give a few examples of what might
constitute a reasonable excuse, but this is not an exclusive list:
compassionate circumstances, such as serious illness, at the time when
notification was required; doubt about whether an activity is taxable;
and uncertainty about employment status when there is genuine doubt as
to whether a person is self-employed.
A fundamental
problem with the alternative proposed in amendment No. 303 is that it
will be difficult to ascertain, in any verifiable way, when the
taxpayer became aware of the failure. Where a taxpayer has a
reasonable belief that an obligation to notify did not arise, they will
not be charged a penalty. That will be so even if HMRC, or a tribunal,
subsequently determines that the activity is taxablean
important safeguard for
taxpayers.
10.15
am An example is a
case in which where there is genuine uncertainty about whether there is
an obligation to provide notification. Someone may consider all the
facts, take advice and conclude that their activity is not taxable. I
think of my dad, who is an avid collector of small die-cast models of
diesel trucks. He goes to events called swap meets, which other avid
collectors of diesel trucks attend, and they swap trucks. The value of
those items depends on the condition of the box as much as the model
being swapped. Small amounts of money are exchanged, and we would not
want to catch people engaged in that kind of hobby, which may, or may
not, be a trade. That is not quite an interest to declare, but my dad
came to mind when I was thinking about the details of the
measure. The concept
of reasonable excuse will address that type of situation, and HMRC will
publish guidance to make that clear. That mirrors the principle that is
applied to incorrect returns: if a mistake is made, despite reasonable
care being taken, it should not be penalised. If the amendment were
accepted it might be perceived as unfair to the compliant majority who
come forward to register and pay tax that is due on time. With no clear
downside for those who fail to do so, compliant taxpayers may lose
confidence in the fairness of the system.
Mr.
Mark Field (Cities of London and Westminster) (Con): I
listened with interest to what the Minister said, particularly the
example that she gave. The Opposition are concerned that that the bar
is set too high. The reality, as far as I can see, is that for anybody
with any previous business experiencethrough incorporation, or
trading as a sole trader and thus having dealings with tax
officersand for anybody who has ever taken professional advice
from an accountant and so on, will almost certainly be unable to claim
under these provisions. We are trying to capture, as it were, such
individuals, who have made a genuine mistake, in our
amendment.
Jane
Kennedy: I accept the point that the hon. Gentleman has
made, and I undertake to keep that particular provision under close
review to make sure that it works as intended, in the event that we
resist the amendment.
Amendment No.
304 seeks to provide the facility to suspend penalties for failures to
notify that are neither deliberate nor concealed.
Conditions for suspension would be that a further failure to notify did
not occur, and that a carelessly incorrect return should not be made
for a period of up to two years. The suspension of penalties is an
innovative aspect of the new penalties introduced for incorrect returns
in the Finance Act 2007, which did a lot of good work. That is
appropriate in the case of errors due to poor accounting or
record-keeping systems. Conditions are set so that someone spends money
to improve systems to prevent further inaccuracies, but the amendment
seeks to apply similar
provisions to the failure to notify penalties. However, there is an
important difference, as HMRC believes that it would be unworkable. The
obligation to notify a new taxable activity is a one-off, unlike
submitting accurate returns, which is an ongoing requirement for most
taxes.
It is hard to
see what conditions could be set to help the taxpayer avoid a further
penalty for failing to notify. The provision would be applicable only
if they started another taxable activity requiring notification and,
again, it is difficult to see how specific conditions could be set to
help prevent them making an error in subsequent returns. It was
suggested in the consultation that suspension of a failure to notify
penalty should be made on the condition that routine tax obligations,
such as filing returns and paying tax on time, are complied with for a
period. That makes more sense, but there are still difficulties with
that approach, not least because it could weaken and confuse the
message that people must tell HMRC when they start a new taxable
activity. Both amendments are unnecessary, particularly amendment No.
303. Amendment No. 304 is unworkable, so I suggest that neither
amendment should be pressed further.
Mr.
Gauke: I welcome the Financial Secretarys remarks
about the concept of reasonable excuse. The term hopeless
task was not mine, but was used by the low incomes tax reform
group, which has a great deal of experience in this area. She made an
interesting practical point about how HMRC would ascertain when
somebody became aware, but again, I highlight the fact that the tax
credit system permits that. She may have her own views about how that
aspect of the tax credit system operates, but it does allow for
that. On suspension, I
am not persuaded by the Financial Secretarys comment that it is
difficult to see how one could have a suspended penalty in such
circumstances. One could do it on future notifications, ensuring that
tax returns are filed on time and accurately. Therefore, I will
withdraw amendment No. 303, but I will press amendment No. 304 to a
Division. I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Amendment
proposed: No. 304, in
schedule 41, page 406, line 11, at
end
insert Suspension 16A
(1) HMRC may suspend all or part of a penalty under paragraph 1 for an
act or failure that is neither deliberate nor concealed by notice in
writing to P.
(2) A notice must
specify (a) what part
of the penalty is to be
suspended; (b) a period of
suspension not exceeding two years;
and (c) conditions of
suspension to be complied with by
P. (3) HMRC may suspend all or
part of a penalty only if compliance with a condition of suspension
would help P to avoid becoming liable to further penalties
under (a) paragraph 1
for any act or failure that is neither deliberate nor concealed;
or (b) paragraph 1 of Schedule
24 to the Finance Act 2007 for careless
inaccuracy. (4) A condition of
suspension may
specify (a) action to
be taken, and (b) a period
within which it must be
taken. (5) On the expiry of the
period of
suspension (a) if P
satisfies HMRC that the conditions of suspension have been complied
with, the suspended penalty or part is cancelled,
and (b) otherwise, the
suspended penalty or part becomes
payable. (6) If, during the
period of suspension of all or part of a penalty under paragraph 1, P
becomes liable for any other penalty, the suspended penalty or part
becomes payable..[Mr.
Gauke.] Question
put, That the amendment be
made: The
Committee divided: Ayes 9, Noes
16.
Division
No.
13] Question
accordingly negatived.
It being twenty-five minutes
past Ten oclock, The Chairman
adjourned the Committee without Question put, pursuant to the
Standing
Order. Adjourned
till this day at One
oclock.
|