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Following the responses to the Government’s call for evidence (‘The Tax Administration Framework Review – enquiry and assessment powers, penalties, safeguards’ which was published on 15 February 2024), the Government are conducting a consultation focused on reforming behavioural penalties which are currently in place.
This consultation proposes two different approaches to reforming behavioural-based penalties, specifically penalties for inaccuracy and failure to notify. The approaches are:
1. Reforming the existing framework: this approach would retain key aspects of the existing penalty system, but would simplify how penalties are calculated and applied. This could involve reducing the number of penalty categories, standardising how behaviour is assessed, and making the rules clearer and easier to follow.
2. Exploring an alternative model: this approach considers a more fundamental redesign of penalties to improve clarity and consistency. It looks at whether a different structure could achieve better fairness, compliance, and deterrence while reducing complexity for taxpayers, agents and HMRC.
The consultation poses seven questions to stakeholders on various aspects of the proposed reforms, detailed in the consultation document. HMRC will review the responses from the consultation and publish a summary. The feedback will inform future policy proposals and draft legislation for further consultation.
All taxpayers could potentially be impacted by this announcement, given the focus on compliance activity; specifically, taxpayers who submit an inaccurate return or document to HMRC, and taxpayers who do not meet their obligations to provide full disclosure to HMRC.
The consultation will run for 12 weeks from 26 March to 18 June 2025.
There are currently a number of penalty regimes, and there can be complexity and uncertainty within these regimes. Additional simplicity and clarity are always welcome.