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Payroll industry responds to HMRC’s Penalty Consultation

May 19, 2015


The Association of Tax Technicians has published its response to HMRC’s consultation on the future of tax penalties launched in February. The ATT has led the response of the UK payroll and agent market and is calling for a more considered approach from HMRC that differentiates between occasional reporting lapses and deliberate failures to report or under-declare income.

ATT President, Natalie Miller, commented “A central theme of our response is the role of suspended penalties. These were introduced six years ago but there is scant information available about how widely they are used and there is some evidence that suspension is not considered where it should be. HMRC rightly say in the introduction to this initial consultation “we want compliance, not penalties”.

“The purpose of suspending a penalty is to incentivise the taxpayer to become compliant. If doing so is more likely to encourage long-term compliance than collecting a penalty (which may cause resentment of the tax system), it makes sense to use that suspension facility more.

“We are sure that if our ideas and those of everyone else who responds to this opening consultation are taken into account, there is a real chance to develop an overall approach to penalties that is coherent, practical, cost-effective and capable of delivering greater compliance.”

The call for greater use of suspended penalties is significant because it would allow HMRC much greater discretion in deciding when to apply a penalty. The frequency of employer reporting of PAYE in real time every time payroll is run magnifies the exposure of employers to the risk of penalties twelvefold for accidental failures of reporting due to lateness, inaccuracy or error.

The greater use by HMRC of suspended penalties called for by ATT President, Natalie Miller, for PAYE RTI reporting failures would appear to be welcome. The ATT submission calls for greater use of suspended penalties in general but does not propose any mechanism for limiting exposure to accumulating suspended penalties.

In the event that wider use of suspended penalties is adopted by HMRC and they are applied to employer RTI reporting errors, they have the potential to create higher overall penalty costs for employers. This possibility could arise if HMRC reserves the right to accrue suspended employer penalties and charge them retrospectively. In such circumstances, employers could face the risk of receiving multiple accrued penalties in one go. The immediate feedback mechanism of a single penalty charged immediately for each reporting failure – which identifies the reporting error allowing the employer to correct it in the following payroll cycles – is lost.

The ATT’s response to HMRC’s penalty consultation therefore raises the possibility that – depending on how HMRC might choose to frame a suspended penalty regime for RTI – employers may be at risk of higher overall penalty costs should HMRC reserve the right to charge multiple accrued penalties at a later date.

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