Businesses and tax professionals have welcomed HMRC’s decision to move away from an automatic penalty system for those who miss PAYE filing deadlines. Instead, MMRC has announced that it will implement a more flexible penalty system which will allow it to take “a more proportionate approach” to small businesses that file late.
The change comes partly as a result of the taxman deciding to shift focus and put greater emphasis on cases of deliberate and large-scale tax avoidance. It is also in part a recognition of the difficulties that the shift to real-time PAYE reporting has created for many businesses. The process has been particularly challenging for smaller businesses, and especially those with employees who work very irregular hours. According to Colin Ben-Nathan, chairman of the Chartered Institute of Taxation’s (CioT) employment taxes sub-committee, the very real difficulty that many small businesses have had in moving over to the new system and meeting their obligations under real-time PAYE filing have forced HMRC to consider a more “pragmatic” approach to the way in which it issues late filing penalties.
This latest decision followed the recent revelation that HMRC had decided to accept the majority of “reasonable excuses” from those who file self-assessment tax returns late without further investigation. While that move was not entirely without its critics, HMRC’s shift towards a more lenient approach to individuals and small businesses has been broadly well-received. Colin Ben-Nathan said that the employment taxes sub-committee of the CIoT “[welcomes] the fact that HMRC are revisiting their approach to penalties and looking to focus much more on serious cases of abuse and persistent non-compliance.”
Anthony Thomas, who chairs the Low Incomes Tax Reform Group of the CioT, expressed similar sentiments about both the move move away from automatic PAYE penalties and the recent announcement that HMRC will waive fines for those who present a good excuse after filing their self-assessment tax returns late.
“HMRC’s announcement that they will accept reasonable excuses from taxpayers who are generally compliant without further probing,” said Thomas, “is sensible, pragmatic and in line with what we have been calling for.”
Regarding the recent change in the way PAYE late filing penalties are issued, Thomas continued: “Fixed automated penalties make no distinction between the deliberate non-complier and the person who makes a one-off mistake. This is neither fair nor proportionate. It is good that HMRC have recognised this.”
HMRC has announced that it now intends to pay more attention to larger-scale and more serious defaults in the tax process, and to do so using a “risk-assessed basis.” In a statement, the organisation said “This approach will enable HMRC to concentrate more resources on the more serious failures to comply, and to focus on educating employers about their filing obligations through targeted communications, webinars and Employer Bulletin articles.”