A fine decision

I welcome HMRC’s risk-based approach to income tax and PAYE late-filing penalties.

Dealing with such penalties takes up a disproportionate length of time for taxpayers, agents and the Revenue alike. They create resentment more than any other part of the tax system.

Fixed-rate fines look quite sensible in the abstract but are a blunt instrument in practice. Lots of taxpayers muddle through the system more or less correctly, but make technical failures by not adhering to strict rules.  The penalties that arise are unfair.

A good example is the recent Optrack case. It was about about payments, rather than returns, but the principle is the same.  A small company with chaotic processes while making payments mostly on time, without actually meeting the strict letter of the law, will be a familiar story to many readers.

Should the system penalise such taxpayers?

HMRC have a hard task because there needs to be a regime to enforce timely payments and returns, but there also needs to be fairness to the many taxpayers who take considerable time and effort to comply with their obligations.

The old system, under which, in practice, there was no in-year sanctions against employers who deliberately did not pay PAYE on time, was unfair to compliant taxpayers. It was right, therefore, that a change was made.

But it is now abundantly clear that further reform is necessary. I await with great interest the outcome of the current consultation.

Scotland

Read HMRC’s document about the definition of a Scottish taxpayer. You might think it will not be relevant to your business, but I expect almost all firms outside Scotland will have at least one Scottish taxpayer or have clients who employ Scottish taxpayers.

The reverse is also likely to be true: Scottish firms will have non-Scottish taxpayers.  As a Nottingham-based practitioner, I may take on new client who arrives in the city from Scotland.  I’ll need to know the date she moved, because that will determine her tax status for the year, and thus her PAYE code.

The implications of fiscal devolution will affect us all.