When an internal memo was leaked to the Daily Telegraph recently and revealed that HMRC planned to waiver the “vast majority” of fines for late filing of the annual tax return, the news was broadly welcomed by taxpayers. However, the decision has not been universally well-received, with some critics calling the move “absurd.”
Missing the deadline for submission of the self-assessment tax return carries a penalty of £100, with additional penalties added at later dates if the return is still not completed. According to the leaked memo, staff were instructed to waive the “vast majority” of initial £100 fines providing the individual or business concerned is able to provide “a reasonable excuse” for missing the deadline. This opened up the potential for around 890,000 deadline-missers to be let off.
HMRC has said that a reasonable excuse is “normally something unexpected or outside your control that stopped you meeting your tax obligation.” A list of excuses has been published on the organisation’s website. However, such excuses will only be accepted if your tax return has since been filed and your tax bill paid.
Previously, it was possible to appeal against the fine if you had a “reasonable excuse” for missing the deadline. However, rather than simply waiving the fine HMRC would look over the tax affairs of the individual or business concerned in detail – a process lasting two or three weeks – before reaching a decision. The “overwhelming majority of appeals,” however, are reportedly accepted at the end of this lengthy process.
HMRC reportedly took the step as it wanted to focus its efforts on cracking down on deliberate tax avoidance, particularly on a larger scale, rather than on “penalising people for trying to do the right thing.” It has also been claimed that the organisation was facing a backlog of around a million letters relating to this issue, placing further emphasis on the question of whether these efforts could be better deployed elsewhere. The move was widely well-received among taxpayers and the public as a whole. However, there have also been some outspoken critics, including independent tax researcher Richard Murphy who questioned the legality of the decision.
Murphy, who called the waiver of late fines “ethically wrong” and “absurd,” insisted that HMRC was not properly enforcing the law. The leaking of this memo, he said, showed the “overwhelming need for a review of HMRC.” It also shows, Murphy claimed, the need for a “review of the penalty regime” because “if penalties are routinely found to be unjust, they should not be charged.”
“What this really shows,” Murphy continued, “is that HMRC is failing to impose the law. They are undermining the will of parliament as they do not have the right to choose if and when they impose the law.”
Margaret Hodge, a Labour MP and a former chair of the Public Accounts Committee, also criticised HMRC’s decision to waive late filing fines. Doing so, she said, would bring the enforcement of tax rules into “disrepute.”
“If HMRC says it is not going to pursue people who file late,” Hodge said, “it undermines the system. It won’t be seen as fair.”