CIOT: Alice in Wonderland Tax Penalties

New penalties legislation has been included in the 2007 Draft Finance Bill which makes a penalty payable if HMRC think that a taxpayer has done, or not done, something. This is a significant shift from the taxpayer actually doing or omitting to do something.

John Cullinane, President of The Chartered Institute of Taxation (CIOT) says: “Where penalties are concerned, the test should always be objective rather than subjective. We believe that in the proposed legislation the words ‘HMRC think that’ are superfluous. The words 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. These words are not needed.”

When this was first suggested by HMRC, the CIOT objected, as did other bodies. On Budget day HMRC admitted that there was almost universal disquiet about the statutory formula ‘If HMRC think’ …”

John Cullinane adds: “Despite objections to this subjective clause, it remains in the draft legislation. The CIOT recognises that HMRC have engaged in constructive consultation over many issues. We are doubly disappointed that in this instance they do not appear to be listening.”