.png)
.png)
What are we to make of the fact, as disclosed on page 152 of HMRC’s annual report and accounts (tinyurl.com/hmrcarac21), that only 16% of the automated penalties issued in 2020-21 were upheld on review: more than four in five were cancelled. HMRC explains: ‘The review system is often the first opportunity for the taxpayer to provide relevant evidence that they should not have to pay the penalty; in particular, that they have a “reasonable excuse”.’ That is undoubtedly true but it begs two questions.
The first is what about taxpayers who did not seek a review? How many of them simply paid the penalty because they did not understand the review process or did not want to get involved in correspondence with HMRC? We will never know, but I would imagine that the numbers are significant.
The second is whether this high percentage is evidence of a structural flaw in the system. Is there a better way of doing things? Should taxpayers be warned of a penalty and given a chance to put forward a reasonable excuse defence before a notice is issued? Should there be a box to tick on a late return to allow a taxpayer to explain why a return is late? More controversially, does the very high rate of cancellations indicate that HMRC is being too lenient in reasonable excuse cases and that it is easier for the department to accept almost any sort of excuse rather than enquire properly into whether it is in fact reasonable?
Whatever the reason something needs looking at here. The new penalty regime, with the introduction of penalty points, may go some way to alleviate the issue but I am not sure that it will solve all of the problems.
