Penalties
Is there a reasonable excuse?
In the past, tax investigations often focused narrowly on a single year, and high penalties were only found in fraud investigations. These days ‘cross-tax checks’ covering business and personal taxes, 'counter-avoidance' investigations, ‘nudge letters’ and ‘disclosure facilities’ have proliferated alongside new penalties. Whatever the type of investigation, penalties are now sought more often, and are usually higher. As well as complex new rules governing penalties, there is a greater focus on behaviour. HMRC looks at whether or not the taxpayer took reasonable care when submitting the return, and whether the failure was in any sense ‘deliberate’.
There are now also different penalty rules for offshore, as well as for failed tax planning. The Requirement to Correct penalty rules around offshore are particularly stringent, routinely producing penalties of up to 200% of the unpaid taxes. In anti-avoidance cases, the rules around ‘Follower Notices’ & ‘Accelerated Payment Notices’ have been game changers, meaning that those that relied upon tax planning that has been challenged by HMRC may have to find the cash much sooner. This bring new risks for advisers, and where HMRC asserts that there has been negligence, there are new rules which allow penalties to be imposed.
Before imposing penalties, HMRC should consider whether there was any reasonable excuse. The Courts have recently criticised HMRC for taking a narrow view of ‘reasonable excuse’ provisions, emphasising that all the circumstances and facts should be considered. It is therefore to be welcomed that HMRC’s recently published evaluation of its powers committed to producing new guidance by summer 2021 on:
• what is considered “reasonable excuse” when penalties are being considered,
• HMRC’s current review of its approach to Requirement to Correct penalties, Follower Notices & APNS
