ACCA welcomes the opportunity to respond to HMRC’s Open consultation: Behavioural penalties reform. There are innumerable benefits of a more consistent, streamlined penalties system. It is ACCA’s long held view that Simplicity, certainty, and stability are the three cornerstones of a good tax system. When taxpayers and their advisers are unclear of what is expected, distortions arise, creating the potential for both mistakes and deliberate rule breaking. Much of what is raised in this consultation rests on HMRC continuing to improve its compliance work. This includes consistency in approach and response windows.
ACCA cautions against designing a system overly shaped by the actions of the worst players. We therefore favour direct, targeted actions against the criminal abusers of our tax system. These are points supported by the insights from our 2023 joint survey of public opinion on tax issues (among residents of G20 countries and New Zealand). The survey found that just 43% trusted their respective tax authorities, with 29% indicating that they either distrusted or highly distrusted them.
With most taxpayers honest and compliant, ACCA believes the tax system must effectively cater to their needs. We make the following suggestions:
- Greater emphasis on the quality of disclosure, including an individual’s cooperativeness and timeframes in which information is supplied. Given the significant volume of data HMRC holds, ‘prompted’ and ‘unprompted disclosure’ seem less relevant in a digitalised environment.
- HMRC should incentivise good behaviour while ensuring that bad behaviour gets punished, reduced penalty amounts for repeated bad behaviour could arguably be seen as rewarding bad behaviour.
- Objectivity must be at the forefront of changes to penalty rates and those concerning escalation. ACCA’s recommends commissioning independent research to provide an objective starting point.
- ACCA sees merit in new penalty triggers within the broad umbrella of ‘offshore evasion.’ This could help differentiate the levels of intent to ‘hide and deceive,’ thereby allowing penalties to be adjusted accordingly.
- On the topic of penalty suspensions, ACCA’s preference is exploring the application of a ‘caution’ or another appropriate warning element. Due to the word’s use by law enforcement agencies, and risk of varying interpretations by overseas jurisdictions, we would not favour direct inclusion.
- ACCA sees no evidential basis for the introduction of non-financial penalties. Given the existing powers already available to HMRC, not to mention the wider reform to the tax administration framework, we see their imposition as impractical.
To read the full response, please download the consultation document found on this page.
