THE LAW AND YOU
(^58) August 2019 Truck & Driver
U
K tax law is complex
and is growing. In 1997,
it stood at 5000 pages,
by 2009 it was 11,520
pages, but by 2016 it
had grown to about 21,000 pages.
In comparison, Hong Kong’s tax
law is a miserly 150,000 words
over a mere 276 pages.
Taxes are an evil necessity.
No one likes paying them. But it’s
for this reason that HM Revenue
& Customs has penalties for
those who, for whatever reason,
do not comply with their
obligations. And to some,
penalties are handed out like
sweets. HMRC issued 1.04 million
late-filing penalties for returns
due for the 2014/15 tax year.
There were another 1m late-filing
penalties issued for tax returns
due for the 2015/16 tax year.
Even worse, it appears that in
January (2019), an HMRC
technical glitch led to some
taxpayers receiving inaccurate
payment reminders that led to
the wrong amounts of tax being
paid and a fine as a result.
How HMRC works
It’s worth pointing out that the
rules apply to numerous taxes,
including Income Tax, Corporation
Tax, VAT, PAYE, National
Insurance Contributions, Capital
Gains Tax and others. The rules
also allow for different penalties
according to the tax. VAT, for
example, allows for a
‘wrongdoing penalty’ where, for
example, someone issues an
invoice that includes VAT that
they are not entitled to charge.
The problem for most is that
their excuses for any breach of
the rules just don’t carry any
water. HMRC regularly publishes
the most ‘popular’ excuses it
receives which, in January 2019,
included a mother-in-law who was
a witch who “put a curse on me”,
“I'm too short to reach the post
box”, “first maid left, my second
maid stole from me, and my third
maid was very slow to learn”,
and “my boiler had broken and
my fingers were too cold to type”.
Own goal
Tax law in the UK is a legal
minefield – but it’s important
you know the basics, as the
penalties for non-compliance
can prove eyewatering
Words: Adam Bernstein / Image: Shutterstock
l ‘Deliberate but not concealed’
- which can mean a maximum
penalty of 70%; or
l ‘Deliberate and concealed’ –
which can lead to a penalty of
100% of the missing tax, or more
if the error is a serious matter,
say fraud or offshore tax matters.
The more serious the reason,
the higher the maximum penalty,
but HMRC may reduce the
penalty “if you... put things right”.
Penalties can be suspended
by HMRC, in total or in part, for
up to two years. This doesn’t
happen often, isn’t offered and a
taxpayer has to request it.
Where ‘deliberate’ errors have
been found, penalties cannot be
suspended. What happens
subsequently depends on
whether the error was disclosed
by the taxpayer to HMRC and
whether the disclosure was
‘prompted’ (by, say, a visit) or
‘unprompted’ (the taxpayer’s own
accord). Naturally, ‘unprompted’
can lead to leniency.
Most people recognise their
obligations and do their best to
comply. In circumstances when
they have taken ‘reasonable care’
and have a ‘reasonable excuse’,
HMRC often doesn’t impose
penalties. But if a penalty is
levied it’ll be up to the taxpayer
to prove that a ‘reasonable
excuse’ for the failure existed.
It’s interesting to note that
‘reasonable care’ and
‘reasonable excuse’ are not
defined by HMRC. This means
that the interpretation by a tax
officer will be very subjective and
no doubt will differ from that of
the taxpayer.
Reasonable or not?
Of course, there will be times
when circumstances beyond a
taxpayer’s control cause an event
that leads to a penalty. Again,
demonstrating a ‘reasonable
excuse’ for the failure may lead
to the penalty being waived in
relation to late payment of tax,
late filing of tax returns, a failure
to notify liability, or a failure to
comply with an HMRC
information notice.None work because HMRC
expects that a taxpayer should
be “a prudent person, exercising
reasonable foresight and due
diligence, having proper regard
for their responsibilities under the
Tax Acts”. It also expects every
individual or business “to keep
records that allow them to provide
a complete and accurate return...
and check with their agent, or
HMRC, to confirm the correct
position, if they are not sure”.Planning to fail
Tax compliance failures are
generally quite easy to list and
as far as HMRC is concerned,
include late filing of tax returns,
failure to submit a tax return, late
payment of tax, failure to notify
HMRC of a tax liability (say, a tax
assessment is too low, there is a
new source of income, or that a
business should be VAT registeredbut isn’t), and a failure to provide
information and documents.
Of course, the actual penalty
will depend on how convincing
an excuse is and whether the
taxpayer can show that
‘reasonable care’ had been taken
in complying with their
obligations. This will be an uphill
task for a penalty-hit taxpayer.Tax return errors
If errors arise with a tax return,
HMRC will decide whether to
impose a penalty but one will
tend to follow on automatically
precisely because the error was
made. However, the penalty will
be graded according to the
degree of blame that lies with the
taxpayer. HMRC uses three
categories:
l ‘Careless’ – which may involve
a maximum penalty of 30% of
the missing tax;Deliberate tax defaulters
Once a quarter, HMRC publishes a list of those taxpayers who
have been caught out deliberately defaulting on their
tax-paying obligations.
On the current list, published in March 2019, is haulier
Brian Hughes and Son from Armagh who, between July 2010
and December 2014, defaulted on £640,017.27 and was fined
£384,010.28; Rocks Haulage, also of Armagh, which between
January and September 2017 defaulted on £37,187 and was
fined £24,729.35; and Mil Logistics Services Ltd of Larne, which
between July 2013 and March 2016 defaulted on £87,712 and
was charged a penalty of £78,940.80.
One of the biggest penalties ever levied related to RAFA-
TRANS Rafal Niedbalski, a Polish haulier from Ryczywół, which
was charged a penalty of £593,620.80 for defaults relating to
£989,368.00 in November 2015. It’s unknown how successful
HMRC was in recovering these monies..
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