HMRC’s penalties risk hitting the vulnerable

We respond to a significant number of consultation documents every year.

So far in 2015 we have responded to 84 consultations and by the end of 2015, it is likely that we will have issued close to 100 responses to consultations issued by HMRC, the FRC, BIS and HM Treasury, among others.

Approximately 40% of the responses we have submitted this year have been to consultations issued by HMRC. AAT works closely with HMRC, not only through consultation response activity, but also through providing representation at a number of relevant forums and through regular meetings held with HMRC’s senior executives.

We also periodically arrange events whereby AAT members are invited to engage with HMRC representatives on issues that HMRC are seeking feedback on  All of these activities help us to ensure that AAT has a strong voice that is heard and that the concerns of members are appropriately represented.

Most recently, HMRC invited comments on a package of civil and criminal options to tackle offshore tax evaders, which closed on 8 October. These covered:

• Civil sanctions for enablers of offshore evasion
• Setting up a new criminal offence for offshore evaders
• Strengthening civil deterrents
• Corporate criminal offence relating to offshore tax evasion

In our responses we outlined broad support for HMRC’s aims to strengthen the deterrents available for tackling offshore tax evasion, but expressed the view that it was important for HMRC’s efforts to focus on deliberate evaders.

We recognised that there will be taxpayers keen to put their tax affairs in order and that HMRC therefore needs to strike a balance that permits voluntary disclosure without making it too much of a deterrent through the imposition of penalties.

In our consultation response, we expressed concern that some of the safeguards were insufficient and additonally pushed for the widening of the guidance around reasonable excuse. We agreed with the proposal that

there should be a statutory defence of reasonable excuse for those parts of the offence arising from a failure to notify chargeability to tax and failure to file a return, and that there should be a statutory defence of reasonable care for that part of the offence arising from an inaccurate return.

However we questioned what standard of proof is required of the defendant, given that in criminal cases it is for the prosecution to prove guilt beyond reasonable doubt. We suggested therefore that it should be for the defendant to only assert that they have a reasonable excuse and for the prosecution to disprove that assertion.

There is a risk that some taxpayers can get inadvertently caught up in legislative developments like this, particularly where there is a levying of penalties where it can very quickly spiral out of control. In instances such as this it can be seen to be counterproductive to HMRC’s broader objective of taxpayers paying the right amount at the right time.

The principles for HMRC’s proposals are nearly always sound, but sometimes the associated safeguards don’t necessarily go far enough in order to protect those people who are perhaps most vulnerable, as was definitely the case with the initial proposals on the Direct Recovery of Debts.

As in that case, this is precisely where AAT, and other professional bodies, can help to shape proposals through the consultation process, and I believe that HMRC recognises that our input is vital in getting legislative developments right.

AAT met with Lin Homer, the HMRC Chief Executive, during the summer. She told us that HMRC additionally wanted to interact with professional bodies in a more proactive way. In particular, they want to get more input into the work that they are doing around their ‘making tax easier/digital tax account’ work, and greater digitization in the ways in which tax agents engage with HMRC.

We have grabbed this opportunity with both hands, and have organised a round table discussion and focus groups to get more voices heard at HMRC. The first is taking place on November 5.

We have pulled together representatives from the profession and from accounting software and cybersecurity developers for an open discussion with HMRC about the sorts of issues pertinent to the key drivers that it is working towards. It’s not something we have done before.

We are also conducting a focus group with HMRC and AAT members in practice in December, to give the membership a chance to have their concerns addressed directly.

Our conversations with HMRC have proved invaluable for both parties, and as time goes on, our work to ensure that proposals work for our members and their clients will only increase.

Adam Harper is AAT's Director of Professional Standards & Policy..