Taxman clueless over number of false fines

A deluge of criticism has descended upon the Inland Revenue after it admitted to the National Audit Office it has no idea how many taxpayers have been wrongly fined £100 penalties.

Freelance UK reported the damning findings of the public spending watchdog which branded the Revenue’s self-assessment system as confusing and failing to increase timely returns over a 12-month period.

But FUK didn’t spot the admission buried in the 64-page report that the tax office cannot identify how many UK taxpayers have been “inappropriately” fined.

According to the NAO, last year HM Revenue & Customs estimates it wrongly imposed late penalty fines on 30,000 people, with 20,000 of those arising due to mistakes from Revenue staff on the day of receipt.

However, for 2005 the only data available on penalty notices shows nearly one million people received an automatic £100 charge for failing to meet the annual deadline.

The NAO said: “HMRC has no mechanisms to identify those individual taxpayers who have incorrectly received a penalty and it has not contacted taxpayers individually to alert them to this risk."

Instead, the burden of responsibility falls to agents and individual taxpayers who are urged to contact the Revenue in the event they wrongly receive a penalty notice.

To compound relations between taxpayers and authorities, the NAO pointed out the Revenue previously issued an apology about false fines on its website, under a section specifically for agents, entitled ‘Working Together.’ The message appeared nowhere else on the website.

Since the apology, concern from taxpayers has moved on in light of the Audit Office’s report that hints the Revenue could be looking at introducing a tougher penalty regime that would charge individuals based on their annual income.

“I don't think the Revenue can say how well the penalty system is working,” said Anne Redston, of the Chartered Institute of Taxation, speaking to the Daily Telegraph.

“Before they look at giving themselves more rights and powers, they should look at how they are using their existing rights and powers.”

She explained it is difficult for taxpayers to declare they are paying the right amount of tax if the Revenue does not know.

“They have not got their head around the penalties system, and they are not interrogating it. The information cannot be that difficult to collate,” said Redston.

The Revenue told the NAO the three main reasons for wrongly issuing penalties was an internal failure to log the return on their system with the correct date, a duplicate record in existence and a failure to note the record correctly in closed cases.

To combat, the problem the Department has put measures into place so that penalty charges are effectively monitored in how frequently they are sent to taxpayers.

“Given the daily penalty is a very sever sanction, it is important that there are very severe safeguards to protect taxpayers against inappropriate action from the Department,” said the NAO report.

“The Department must seek approval from the General Commissioners on a case-by-case basis for their agreement to the imposition of daily penalties and their continued use. The procedure is time consuming and can involve delays as bodies of General Commissioners meet only periodically.”

A spokesperson for the Inland Revenue said: “We endeavour to make sure penalties are not incorrectly issued and have processes where we are cleaning data. Where people have wrongly paid and we come across it, we refund the money - we don't hesitate.

“We are cleaning data and trying to bring it up to date, that is the priority. But this sort of data capture is something that is in the pipeline.”

Officials at the Audit Office said some taxpayers expected Revenue enquiry centres, which often make calls to answer tax queries, to provide a free tax return completion service as the annual deadline for self-assessment approached.

They concluded: “HM Revenue and Customs needs to manage an expectation gap in the type and level of service that the centres can provide.”



 

28th June 2005

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