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New Penalties for Incorrect Returns Schedule 24 Finance Act 2007

New Penalties for Incorrect Returns Schedule 24 Finance Act 2007. Mark Leech Project Business Director New Penalties. Objectives. To explain context of new penalties To provide outline of legislation Explore some key concepts Outline plans for implementation Proposals for further reform.

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New Penalties for Incorrect Returns Schedule 24 Finance Act 2007

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  1. New Penalties for Incorrect ReturnsSchedule 24 Finance Act 2007 Mark Leech Project Business Director New Penalties

  2. Objectives • To explain context of new penalties • To provide outline of legislation • Explore some key concepts • Outline plans for implementation • Proposals for further reform

  3. Context • HMRC Review of Powers, Deterrents and Safeguards set out to achieve: • Modernisation of statutory powers and safeguards • Alignment across taxes • A new department that feels different from its predecessor • Behavioural change for taxpayers, advisers and HMRC staff

  4. Context • Theme of the Review: • “HMRC should support those who seek to comply, but come down hard on those who seek an unfair advantage through non-compliance”

  5. Context • Legislation To Date: • Penalties for incorrect returns - Finance Act 2007 • Criminal investigation powers - Finance Act 2007 • Surveillance powers for criminal investigation for direct taxes – Serious Crime Act 2007.

  6. Outline of Law • Penalties for Incorrect Returns: • Same for returns and claims for Income Tax, CGT, CT, PAYE, NIC and VAT • Applies to return periods starting on or after 1 April 2008 where the due date for filing is on or after 1 April 2009

  7. Outline of Law • Penalties determined by: • Amount of tax understated • Nature of behaviour • Extent of taxpayer disclosure

  8. 100% max 70% max 50% min 35% 35% min 30% max 15% min Mistake despite reasonable care Failure to take reasonable care Deliberate understatement Deliberate understatement with concealment Penalties for Incorrect Returns(IT, CGT, CT, PAYE, NIC, VAT) • Statutory framework

  9. 100% max 70% max 50% 35% 35% 30% max 30% min 15% 20% min 0% min Mistake despite reasonable care Failure to take reasonable care Deliberate understatement Deliberate understatement with concealment Penalties for Incorrect Returns(IT, CGT, CT, PAYE, NIC, VAT) • Statutory framework

  10. Outline of Law • Other features: • Applies to incorrect repayment claims • Penalties for overstated losses • Group Relief loophole closed • Penalties for timing differences

  11. Outline of Law • Other features: • Penalties for accepting an inadequate assessment • Clarify role of agents • Suspended penalties • Transferable penalties

  12. Key Concepts • Behaviour descriptions: • Reasonable care • Failure to take reasonable care • Deliberate • Deliberate with concealment

  13. Key Concepts • Disclosure defined in law as: • Telling HMRC • Giving HMRC reasonable help • Allowing HMRC access to check • Unprompted – no reason to believe HMRC are • about to discover • Prompted – all the rest

  14. Key Concepts • Suspended penalties: • Only failure to take reasonable care • Turning a sanction into an incentive • For systemic and record keeping weaknesses • Up to 2 years • If comply with conditions penalty cancelled.

  15. Key Concepts • Interaction with VAT voluntary disclosures: • No longer guarantee no penalty for a voluntary disclosure • But still possible to reduce a careless penalty to Nil • Correcting errors on next return is not unprompted full disclosure

  16. Implementation • Technical guidance: • Drafted and consulted upon • Published on 1st April 2008 • Includes detailed interpretation and examples

  17. Implementation • Communication: • Press articles, internet material • Speaking at Seminars and Conferences • Exposing Operational and Process guidance and learning material Seeking to achieve behavioural change

  18. Implementation • Learning: • Awareness learning • In-depth learning • Large number of HMRC staff • Looking for joint learning with external organisations

  19. Implementation • Business Processes: • Developing processes and support to ensure operation of new penalties is consistent and effective

  20. Going Forward • Penalties Reform – further work: • First stage of a major overhaul of all HMRC civil penalties • Consulted earlier in 2008 on extending - to incorrect returns for all other taxes - to failure to notify a new taxable activity (adapted) • Now included in 2008 Finance Act • Late filing and payment penalties 2009?

  21. More Information • HMRC website • Review of Powers, Deterrents and Safeguards • New Penalties webpage - FAQs - Leaflet - E-learning Awareness Module - More to come • Technical Guidance April 2008 • The law • Schedule 24 Finance Act 2007

  22. Questions?

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