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No future for 'HMRC thinks'

Proposals to hit businesses with tax penalties if HM Revenue & Customs simply “thinks” they are guilty of non-compliance have been abandoned, it emerged yesterday.

Tax experts welcomed the removal of the controversial words “HMRC thinks” from the Finance Bill 2007, in relation to the issuing of tax penalties.

Ministers did want penalties to be levied whenever HMRC ‘thought’ that a taxpayer who submitted their return later spotted an error, but failed to take steps to declare it.

Business advisors have told Freelance UK that the use of HMRC ‘thinks,’ which is not a familiar word in this aspect of tax law, would allow HMRC to issue penalties as a “judge and jury.”

Similar protestations to the Schedule 24 of the Finance Bill were sounded to the tax authority by the Chartered Institute of Taxation, and the Institute of Chartered Accountants in England & Wales.

Experts at Egos Ltd, a tax and legal specialist for freelancers, and the Professional Contractors Group, the trade group for freelancers, also called for the controversial words to be removed.

“Whether or not a penalty is due should be a question of fact, based on evidence, and requiring an objective test,” said the ICAEW’s Tax Faculty.

They responded to Revenue & Customs: “Rather than ‘HMRC think’, more appropriate wording would be ‘HMRC are satisfied’ or ‘HMRC reasonably believe.’

In light of tax experts’ recommendations, the Finance Bill now states HMRC must “have reasonable grounds for believing” a person has committed an offence before issuing them a penalty.

“The removal of the phrase ‘HMRC thinks’ will make the legislation work better, said Rob Ellerby, CIOT President.

“Where penalties are concerned, the test should always be objective rather than subjective.”

He added that in their context the words “HMRC thinks” were “superfluous.”

The Institute explained: “They come from legislation where the inspector is exercising judgement.

“In the case of penalties, that is not the position. Either there has been an offence giving rise to a penalty or there has not. The penalty follows from what the taxpayer did and from nothing else.”

The decision to remove “HMRC thinks” from the Finance Bill was confirmed in an amendment paper published by The House of Commons yesterday.

May 25, 2007
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