HMRC Is Shite

HMRC Is Shite
Dedicated to the taxpayers of Britain, and the employees of Her Majesty's Revenue and Customs (HMRC), who have to endure the monumental shambles that is HMRC.

Thursday, 26 January 2017

Tax Error Penalties Increase By 38%

In the year to April 2016, HMRC imposed 28,663 penalties against those whose inaccurate returns deliberately understated their income.

This represents an increase of 38% on the 20,740 penalties given out in 2014-15.

International Adviser reports that the figures, obtained by RSM using a Freedom of Information request, show that just 5,162 fines were given out in 2012-13, an almost six-fold rise in deliberate penalties over a period of four tax years.

Mike Down, head of tax investigations at RSM, is quoted:
"This spike in penalties suggests a marked change in attitude at HMRC, and it is clear that Inspectors are now taking a much harder line.

However, HMRC needs to be wary of the perception that they are engaging in ‘penalty farming’ and ensure they don’t unfairly penalise people who are not seeking to deliberately deceive". 
Penalties are levied according to the type of taxpayer behaviour that leads to an inaccuracy and on whether the tax adjustment is volunteered freely, or arises as a result of an HMRC challenge.

There are four categories of behaviour, ranging from ‘mistake’ despite taking reasonable care, failure to take reasonable care (or ‘careless’), to ‘deliberate’ with the most serious being an inaccuracy which is ‘deliberate with concealment’. The more serious the behaviour, the higher the penalty.

As Mr Down says, HMRC needs to be wary of penalising people who innocently made a mistake.

The ongoing increase in penalties levied indicates one or more of the following:

1 Taxpayers are becoming more dishonest.

2 HMRC are becoming more skilled at identifying errors.

3 HMRC are "penalty farming".

Your thoughts and opinions are, as always, very welcome.

Tax does have to be taxing.

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  1. I am all for HMRC having the powers to ensure the tax system is fair and collects the right revenue, but doesn't this sound a little too draconian? Will those not deliberately avoiding or evading be targeted as cash cows? With HMRC themselves making so many errors day to day, think Concentrix debacle etc, how about HMRC senior managers are penalised 38% of their gross monthly salary for each error? I am extremely supportive of equality (unlike HMRC I support it in deed not in words), and would like to see a level playing field across the board.

  2. A taxpayer came to us a year ago. He had completed his tax return himself and submitted it electronically. He thought he was claiming back a small tax repayment of say £50, but had mistakenly claimed back £100K+. HMRC did not issue the tax repayment, contacted taxpayer 9 or so months later and he admitted his error. HMRC decided he had been careless and he should pay a penalty of £20K! After a year of correspondence, which highlighted failures by HMRC, they still want the penalty. I think they are penalty farming! In addition, if HMRC are prepared to not apply their own powers, so they can put themselves in a position to seek penalties, is this not criminal behaviour?

    1. Its an organisation without adequate safeguards in place against the behaviour of its management, so anything is possible.
      The case outlined above is interesting. How was £100k+ claimed in error? Putting that aside, and assuming it was a keying error (albeit a rather huge one), it does seem criminal to seek a £20k penalty in the circumstances described with highlighted failures also noted on the part of HMRC.
      With the new powers coming, and an HMRC workforce lacking experience, if HMRC can not be reasonable about this matter I would raise with your local Member of Parliament so they can make representations.

    2. By the way, the HMRC workforce is lacking experience at these times of great change in the tax system because of the poorly planned decision to close the majority of its offices (making redundant all the experienced staff). They've only had over a decade to plan a strategy so its difficult to criticise too much. Jon Thompson admitted to the PAC yesterday that there are risks to this, but in their usual way HMRC will no doubt carry on regardless.

  3. When the penalty system currently in place was implemented in 2009 , staff were told that in the majority of cases they would be suspended ie the regime was to raise compliance not revenue -this has gone completely out of the window as penalties are now part of the departments income , and staff can be criticised and have their performance marking, and thus pay, downgraded for the "wrong kind of penalty " .You will never be criticised for raising a penalty unfairly , and the paperwork to suspend takes far longer to suspend
    than actually raise a penalty . The whole notion of "lack of reasonable care " is laughably subjective , and ive sat in on inquests as to the low level of penalties in a team and why were more not deliberate ie at a higher rate.Jennie Grainger announced to staff that 37% of penalties should be deliberate in 2015-2016 , and this figure will surely rise , except of course if you are connected with top four accountants , in which case penalties are brushed under the carpet because of course large organisations and their employees are never dishonest.

    1. Interesting perspective on what goes on in Hmrc. Now when we hear of a 38% increase in penalties, and the above Hmrc insider (?) saying Jenny Grainger set a target of 37% deliberate penalties, doesn't this all sound a bit dodgy on a day when the media are reporting of the PAC's criticism of Hmrc's preferential treatment of the rich? One rule for the rich and another for SMEs? No surprise, we all know Hmrc's appalling attitude to the rule of law, equality and level playing fields.

    2. Oh, the old issue of how HMRC treat 'high net worth' individuals and multinationals. When Dave Hartnett was at HMRC he was apparently the most wined and dined official in the civil service. It could just be that HMRC have the most entertaining dinner party chat. But when ordinary small business owners can't even call into their local tax office to get advice (because there isn't such a thing anymore) , and while hmrc say they are 'man marking' the rich, it does make you wonder what is REALLY going on.

    3. 'Man marking', 'close working relationship' blah blah blah etc are some of the terms used to describe how HMRC look after the rich. I am certain they genuinely believe this approach produces the most revenue to the exchequer but it must be difficult to avoid getting too close - I think the technical term is 'regulatory capture' though some might think of other words.

  4. Sorry Anon@18.13 but failure to hit targets will not reduce anyone officers pay. Wage rises have been non existent in HMRC for years-what little is given is taken away with higher NIC's and pension contributions. Many are taking home less than they were 10 years ago.
    HMRC advertise pay that ranges from £×× to £×× which is nonsense. You start on the bottom range with absolutely zero chance of progressing up the pay scale. Many long serving staff are still on the bottom of the range, so why can they advertise jobs this way? And if these officers get promoted, they will have to work more hours per week, lose 1.5 days annual leave,and sick pay period reduces.
    What other "good, modern employer" makes terms worse should they promote you?

    1. HMRC is not doing what it says on the box
      "The new strategic objectives are: Maximise revenues due and bear down on avoidance and evasion."
      "The new strategic objectives are:
      Maximise revenues due and bear down on avoidance and evasion
      Transform tax and payments for our customers
      Design and deliver a professional, efficient and engaged organisation"
      "The Mission Statement states re Your Charter that:
      [HMRC] want to give you a service that is even-handed, accurate and based on mutual trust and respect. We also want to make it as easy as we can for you to get things right.”

      Sorry, what was the question again?

    2. HMRC is nonsense full stop. Badly managed from the top. Senior management given bonuses, junior staff pay freezes. No coherent strategy or vague sense of direction. Bad publicity over a number of years now for 'sweet heart deals'. Criticism in open court for criminal breach of data law but nobody held accountable. A bullying culture which is inhumane. Misconduct and law breaking covered up when it suits them. Zero integrity.

      Interesting comment 28/1 @ 17:58 re they advertise pay ranges but you barely move up the scale and the fact some staff take home less than 10 years is obviously devastating for them, but must have implications for morale and the subsequent service HMRC provide. To advertise a pay range where you can never reach the top, although technically is probably legally tight, feels like some kind of fraud by false representation??