The Tax Administration Framework Review: enquiry and assessment powers, penalties, safeguards

Question 1

Summary

Accepted Answer

Subject of this consultation

The tax administration framework is the broad system of instructions, guidelines and obligations underpinning the tax system. Of particular interest here are some of the parts of the framework relating to tax compliance.

This call for evidence invites views on how certain aspects of tax administration could be reformed as part of the government commitment to establish a trusted and modern tax administration system.

Scope of this consultation

The call for evidence explores a range of topics within tax administration relating to HMRC’s enquiry and assessment powers, penalties, and safeguards. Only taxes, duties and National Insurance contributions (NICs) administered by HMRC are within the scope of this call for evidence.

Who should read this

The government welcomes engagement from any individual, business or organisation with views on how these powers, penalties, and safeguards can be made more efficient, effective, and simpler to understand in supporting the health of the tax system. The call for evidence is likely to be of particular interest to accountants, tax agents, legal professionals, payroll professionals, bookkeepers, insolvency professionals, software providers, financial advisers and their clients. Taxpayer representative bodies, charities, and other voluntary organisations that help people with their tax affairs will also have an interest.

Duration

The call for evidence will run for 12 weeks, beginning on 15 February 2024 and ending on 9 May 2024.

Lead official

The lead officials for the consultation are Ronan Sully and Alastair Dougans of HMRC.

How to respond or enquire about this consultation

Any responses or queries about this consultation should be sent to tafrcompliance@hmrc.gov.uk.

Respondents should not feel that they have to respond to all the questions in this document. HMRC also welcomes partial responses, focused on the individual aspects that are most relevant to the respondent.

Additional ways to be involved

HMRC welcomes collaboration with a wide range of stakeholders and will organise stakeholder discussions to support contributions from across the range of taxpayers, intermediaries and businesses who interact with the tax system. Please contact HMRC using the email address above if you would like to be involved.

After the consultation

Responses to this call for evidence will inform any future policy proposals to reform the tax administration framework in the aforementioned areas, which could then be subject to further consultation in accordance with the tax policy-making process.

Getting to this stage

In July 2020, the government published a 10 year strategy to build a trusted, modern tax administration system. This included a commitment to reform the tax administration framework.

Following this, the government published an initial call for evidence, The Tax Administration Framework: Supporting a 21st Century tax system, on 23 March 2021 and a subsequent summary of responses on 30 November 2021. The call for evidence drew significant support for HMRC to review the areas of the administration framework relating to HMRC’s powers, penalties, and safeguards.

The following 3 documents concerning key elements of tax administration were published in Spring 2023 to engage with stakeholders:

A summary of responses to ‘Simplifying and modernising HMRC’s Income Tax Services through the tax administration framework’ is being published alongside this call for evidence. Summaries of responses to ‘The Tax Administration Framework Review – information and data’ and ‘Tax Administration Framework Review – Creating innovative change through new legislative pilots’ will be published following the government review of the responses.

Previous engagement

HMRC held preliminary discussions with several tax professional bodies and taxpayer representative groups during the 2021 Tax Administration Framework Review (TAFR) call for evidence.

Since then, it has continued to build an evidence base through further discussions with external stakeholders and other tax authorities.

Question 2

1.  Introduction

Accepted Answer

The tax administration framework is the set of policies, legislation, and guidance that underpins HMRC’s ability to administer taxes and duties effectively. The framework consists of a patchwork of rules and obligations, elements of which are over 50 years old, and were not conceived with a modern, digital, 21st century tax system in mind.

Responses to the initial call for evidence provided strong support for simplifying the tax administration framework and in particular wanted HMRC to:

be more transparent with customers
provide greater certainty and clarity in legislation and administrative guidance
demonstrate fairness by addressing the perceived disparity in treatment between different types of customer
use the wider framework review to support digital reform to build a modern, digital tax system

Since then, the government has published 3 further documents to engage with stakeholders concerning tax administration framework reform. These documents cover HMRC’s Income Tax services, HMRC’s information and data powers, and creating change through new legislative pilots. These form a core part of the wider tax administration framework and are fundamental to ensuring that everyone pays the tax that is legally due.

The role of HMRC

HMRC’s powers facilitate the collection of revenue to fund the UK’s public services. The money HMRC collects, £814 billion in 2022 to 2023, pays for the schools, hospitals, police and other essential services the nation relies on, as well as the armed forces and security services that keep the nation safe.

The best way to help individuals and organisations get their tax right is through the design of the tax system – which is why HMRC’s compliance strategy is focused around 3 approaches:

preventing non-compliance through well designed policies, processes, and services
promoting compliance through education and customer support
responding robustly to non-compliance when it happens

Through the use of cutting-edge data analysis, HMRC identifies risks to compliance and designs tailored, targeted and proportionate interventions to address them.

A well-designed system prevents non-compliance before it can occur, while making things easier for taxpayers and allowing HMRC to focus resources where they can make the most difference. Compliance activity is funded through taxation and secures revenue for public services, so it is important that it is as effective and efficient as possible.

The vast majority of customers get their tax right and pay the correct amount. HMRC supports honest taxpayers whilst making it hard for dishonest taxpayers to cheat the system and gain an unfair advantage. In line with the HMRC Charter, HMRC strives to treat all customers fairly and with professionalism.

The call for evidence

The call for evidence focuses on HMRC’s enquiry and assessment powers, penalties, and safeguards. These underpin HMRC’s ability to respond robustly to non-compliance, while also promoting compliance and ensuring taxpayer rights are protected.

The government believes reform in these areas has the potential to simplify and modernise the tax administration framework, providing greater certainty and consistency, strengthening drivers to comply and, ultimately, helping to support and increase trust in the tax system. This review’s objectives are set out more fully in Annex A.

The call for evidence has taken account of the conclusions of the Review of HMRC’s Powers, Deterrents and Safeguards, which was known as the Powers Review and ran from 2005 to 2012.

The Powers Review identified a set of principles to help shape the design of powers, obligations, sanctions, and safeguards within the tax system. These principles remain relevant today and will be used to guide the design of any reform proposals this review generates. These are set out in Annex A.

The government built on the Powers Review with the Evaluation of HMRC’s implementation of powers, obligations and safeguards introduced since 2012, published in February 2021. This call for evidence forms part of HMRC’s work to progress Commitment 1 in the evaluation to consider further work on powers and safeguards as part of the wider review of the tax administration framework.

The main themes from responses to the initial call for evidence concerning HMRC’s powers, penalties, and safeguards included:

that HMRC’s enquiry and assessment powers and penalties are too complex and would benefit from simplification
the view that asymmetries between HMRC’s powers and taxpayers’ rights contribute to a perception that the tax administration framework is unfair
that HMRC’s approach should continue to be tailored to taxpayer behaviour and support those who try to get it right first time, with tougher penalties for those who are deliberately or repeatedly non-compliant
that use of discretion to ensure interventions are proportionate and consistent is key to building trust
the perception that dispute resolution mechanisms are disproportionately expensive, potentially barring taxpayers from challenging HMRC
the potential to strengthen safeguards for taxpayers that follow HMRC’s guidance
broad agreement that greater transparency could help reassure taxpayers they are being treated fairly and that HMRC uses its powers consistently

Respondents also raised points about HMRC’s operational approach and proposed training to help ensure greater consistency. HMRC recognises the importance of this and is committed to improving technical tax and core compliance capabilities, so that HMRC’s officers have the resources, skills, and capability to meet the Compliance Professional Standards and the HMRC Charter.

This document explores and builds on these points by exploring a range of potential opportunities for reform. Responses to the initial call for evidence supported HMRC drawing from international comparisons to simplify and modernise tax administration. Annex B includes examples of enquiry and assessment powers, penalty regimes, and safeguards in other countries to help illustrate alternative approaches the UK could explore as this review progresses.

Chapter 2 looks at HMRC’s enquiry and assessment powers, including potential opportunities and risks relating to a more consolidated suite of powers, whether there are areas of the tax system which could potentially benefit from HMRC taking a different approach, and modernising how HMRC sends statutory notices to taxpayers and agents.

Chapter 3 focuses on penalties and explores the benefits and challenges to increased alignment across different tax regimes, whether there are specific penalties which could be simplified, and the role of penalty escalation for continued and repeated non-compliance within the design of UK tax penalties.

Chapter 4 considers safeguards, including the potential for aligning the processes for direct and indirect tax appeals, expanding the use of statutory reviews and alternative dispute resolution (ADR), and making greater use of digital appeal routes.

Your input to this call for evidence will help shape proposals to make our tax system simpler, easier for customers and agents to engage with, and improve HMRC’s ability to tackle non-compliance robustly. Consistent with the tax policy making framework, the government will consult on any specific reform options as this review progresses.

Question 3

2.  Enquiry and assessment powers

Accepted Answer

Introduction

HMRC relies on information to ensure the tax system works well and that people pay the right amount of tax and receive the right amount of support in the form of payments and credits. To that end, a variety of obligations are placed on taxpayers and intermediaries to notify liability to tax and to submit information to HMRC alongside paying any tax due. HMRC has a range of powers enabling it to check the accuracy of this information and to address non-compliance.

These powers differ across tax regimes. For example, for most direct taxes where a risk is identified, HMRC will typically use its enquiry powers to check a return or claim by opening an enquiry, with any non-compliance corrected when the enquiry is closed. There is however no corresponding enquiry power for the indirect tax regimes, such as VAT, but HMRC can address non-compliance using its assessment powers by raising an assessment within certain time limits.

Enquiry powers

Once a return has been submitted for a direct tax such as Corporation Tax Self Assessment (CTSA), Income Tax Self Assessment (ITSA)T, and Stamp Duty Land Tax (SDLT), an enquiry may be opened into the return (or amendment of that return). This is usually as a result of HMRC identifying a risk that the tax declared is incorrect. Enquiries can also be opened into certain claims made outside of returns.

HMRC has a limited window to open an enquiry into a return or claims made outside of a return. For instance, an enquiry can only be opened within one year of when an ITSA return is submitted, unless the return is late. Once opened, and subject to certain safeguards, there is no formal time limit on when the enquiry must be closed and amendments to the tax return in question made. During the initial call for evidence, external stakeholders highlighted HMRC’s ability to open only one enquiry into a return within the enquiry window as being an important safeguard, providing certainty to taxpayers.

At any time during an enquiry, taxpayers may apply to the First-tier Tribunal for a direction that HMRC should issue a partial or final closure notice within a specified period. Once an enquiry is concluded by HMRC, a final closure notice is issued, which can be appealed (as can partial closure notices, if issued beforehand).

Assessment powers

Where a regime has no enquiry powers or where the enquiry window has passed, HMRC can address non-compliance by issuing an assessment. Assessments (or determinations that act like self-assessments) can also be raised where there has been a failure to submit a return.

Unlike enquiries, where there is no formal time limit for closure, all assessments are subject to time limits. These time limits differ depending on the tax regime. For most indirect taxes, such as VAT, HMRC has 2 years from the end of the prescribed accounting period to make an assessment if further tax is due. This is extended to 4 years, so long as the assessment is raised within 1 year of HMRC having sufficient evidence of facts to justify the assessment. If the loss of tax was due to deliberate behaviour, the time limit is extended to 20 years, but the assessment must still be raised within 1 year of HMRC having sufficient evidence of facts.

For taxes such as ITSA and CTSA where HMRC identify a loss of tax outside of the enquiry window, discovery provisions allow HMRC to raise an assessment to correct the inaccuracy. The normal time limit for discovery assessments is 4 years after the end of the relevant tax period. Unless the loss of tax was due to careless or deliberate behaviour, the ‘information made available’ test must be satisfied: a ‘hypothetical officer’ could not have been reasonably expected to be aware of the insufficiency at the time when HMRC ceased to be entitled to open an enquiry (or after a closure notice was issued) based on the information made available. If the loss of tax was brought about by careless or deliberate behaviour, the time limits are extended to 6 years and 20 years respectively.

The normal time limit for PAYE determinations (which act like assessments) is 4 years after the end of the relevant tax period. Unlike CTSA, ITSA, and the indirect taxes, there are no conditions that relate to HMRC’s knowledge of the facts.

In comparison, the time limits to correct NICs non-compliance are very different to direct and indirect taxes. Instead of there being a time limit to issue an assessment, an appealable decision on any additional NICs liability is notified to the taxpayer and court action to protect that debt must be taken within a certain ‘limitation’ period. In England, Wales, and Northern Ireland this is 6 years and in Scotland it is 20 years. NICs for the self-employed are corrected though the ITSA enquiry and discovery provisions but the ‘limitation’ period still applies.

Most direct tax assessments, including discovery assessments and PAYE determinations, have a 6 year time limit to make an assessment in instances where a loss of tax is brought about by careless behaviour. Income Tax, Capital Gains Tax, and Inheritance Tax also have a 12 year time limit to make an assessment where the loss of tax relates to offshore matters. No such extensions (either the 6 year or the 12 year) exist for indirect taxes. All taxes have a 20 year time limit for deliberate behaviour.

Challenges

There are a number of aspects with the application of HMRC’s compliance checks that may create challenges for taxpayers and HMRC:

Navigating differing approaches

Most of HMRC’s enquiry and assessment powers are regime specific and spread across multiple, separate pieces of legislation. There are variances in the rules, processes, time limits, obligations, and depending on the different taxes, the circumstances and behaviours involved. This can be due to the development of taxes administered by different government departments in the past but also because of the specific needs or characteristics of certain taxes.

These differences create costs for taxpayers, agents, and HMRC in terms of understanding the respective powers and managing the variety of different interactions required by them. This is particularly evident when HMRC checks a taxpayer’s compliance across multiple taxes at the same time.

Feedback from external stakeholders noted that HMRC’s differing compliance checks adds to complexity, creates uncertainty, undermines trust and willingness or ability to comply with the process, and can result in the perception of unfair outcomes.

Procedural challenges

Some taxpayers and agents seek to exploit aspects of HMRC’s application of its discovery powers: for instance, when the tax liability is not in doubt but the validity of the discovery assessment process itself, which involves a degree of subjectivity, is challenged. For example, taxpayers or agents disclosing information in the ‘any other information’ box of the return in such a way as to make it difficult for HMRC to identify an insufficiency of tax may have arisen. These are long running sources of dispute, which often end in litigation. Similarly, HMRC’s application of its one year evidence of facts time limit also involves a degree of subjectivity and is often challenged by taxpayers.

Claims for tax relief and credits

HMRC must strike a balance between promptly administering payment to taxpayers who make accurate and correct claims, while also being able to effectively identify and tackle those who seek to bend or break the rules. Traditionally, HMRC has operated a ‘process now, check later’ approach when dealing with claims for reliefs and credits, relying on subsequent compliance activity to address inaccurate and fraudulent claims.

This approach helps ensure legitimate claimants receive the payment quickly but is vulnerable to exploitation and carries significant cost for HMRC and risks for the Exchequer. For example, HMRC may struggle to recover excess tax reliefs and credits where the claimants are based overseas or have entered liquidation or bankruptcy, resulting in revenue losses and a higher tax gap. Additionally, where HMRC takes action to correct obvious errors in a claim, a taxpayer can reject that revenue correction without providing supporting evidence. The reasons for the rejection are not always clear, which means HMRC may have to open an enquiry.

Opportunities for reform

Based on the responses received to the initial call for evidence and a series of follow-up engagements with stakeholders to explore those responses in more detail, HMRC has identified several reform opportunities in relation to its enquiry and assessment powers.

In 2007, the Powers Review considered removing the enquiry framework and replacing it with an evidence of facts rule. Stakeholders liked the concept of the evidence of facts rule but found it difficult to apply in practical scenarios. There was a desire for the enquiry window to be retained due to the certainty it offered to compliant taxpayers. However an enquiry window was not seen as being appropriate for VAT and PAYE.

Whilst these elements are also in scope of the reform opportunities detailed here, the scope of this review is broader.

Reform opportunity A: consistent powers across tax regimes

Ireland, Australia and Canada all take a consistent approach to their equivalent of enquiry and assessment powers across their various tax regimes - see Annex B. Adopting a similar approach in the UK could benefit taxpayers, agents, and HMRC, reducing the need to understand different powers and building trust through consistency of approach.

One approach would be to replace HMRC’s current enquiry and assessment powers with a single set of powers that apply across all taxes. An alternative would be to identify circumstances or taxes where a common approach could be applied, and others that need a different approach, and then design the appropriate sets of powers. This could preserve the existing distinction between enquiry-based and assessment-based models but still allow greater consistency of the key provisions.

Any reform in this area is likely to generate transitional costs for taxpayers, agents, and HMRC and may create new areas of uncertainty that result in litigation. The benefit of moving to an alternative set of powers would need to justify those costs and risks. This will be considered more fully if taken forward, but we would welcome any views on the potential costs at this stage.

Question 1: What are the potential opportunities, benefits, and risks of moving to a single set of powers across all taxes?

Question 2: What are the potential opportunities, benefits, and risks of moving to a model that gives greater consistency and alignment to the key assessment and enquiry provisions?

Question 3: What are your views on any potential costs of changes to assessment and enquiry powers?

Question 4: Are there any circumstances or taxes where specific enquiry and assessment powers may be necessary?

Reform opportunity B: aligning powers and addressing gaps

Across HMRC’s enquiry and assessment powers, there are areas of potential gaps or mismatches, where powers in one regime are not replicated (either fully or partly) in otherwise similar regimes. These inconsistencies can undermine fairness and create unnecessary costs, for example leading HMRC to open protective enquiries into other years while an enquiry for a past year remains open.

Examples include:

the absence of consequential amendment provisions for ITSA, as compared to CTSA (Finance Act 1998 schedule 18 paragraph 34(2A))
the absence of a discovery determination provision (to remove overstated losses) for ITSA compared to CTSA (Finance Act 1998 schedule 18 paragraph 41)
the conditions to make directors personally responsible for unpaid PAYE and NICs liabilities (where it is appropriate to do so) are based on a similar principle, but unlike PAYE where directors can be made jointly and severally liable, NICs liability requires an assessment of the director’s culpability and liability can be apportioned between the directors who are individually culpable.

Question 5: What would be the impact of greater alignment in the examples mentioned?

Question 6: Are there other potential gaps or mismatches that you think it would be beneficial to address?

Reform opportunity C: consequential amendments and assessments across periods and across taxes

If HMRC finds and corrects errors in one tax regime that affect another, then any assessment to correct the other tax are subject to the relevant time limits, which may have passed. This can undermine fairness and create unnecessary costs, for example leading HMRC to have to open protective enquiries. To address this, time limits could be suspended (as they are for CTSA consequential amendments) to enable the tax consequences resulting from non-compliance to be corrected across all affected periods and tax regimes.

Question 7: What are the merits and risks of HMRC introducing a consequential amendment power across periods and tax regimes?

Reform opportunity D: conditions for assessment

HMRC’s ability to raise assessments for indirect taxes or where a discovery has been made for CTSA and ITSA is restricted by conditions that relate to HMRC’s knowledge of the facts. These conditions are outlined in the first section of this chapter. Both have been, and continue to be, a source of dispute and litigation. This review presents an opportunity to address this, provide greater certainty and reduce the costs incurred by taxpayers, HMRC and the courts and tribunal service.

One option would be for the UK to adopt a simpler, strict time limit approach as other countries do. HMRC recognises there’s a particularly important balance to strike between certainty and safeguards for taxpayers and upholding the integrity of the tax system by tackling non-compliance robustly, particularly where it relates to fraud.

Question 8: What are your views on the opportunities and merits of reform in this area?

Reform opportunity E: tailoring HMRC’s powers

The challenges presented by claims for tax relief and credits provide an example where a different approach may be helpful. One alternative would be the introduction of a grant-type model for processing claims structured around ‘an application, decision, appeal’ approach. This could allow HMRC to more effectively and efficiently tackle claims that either contain errors or may not be genuine, while still promptly processing and paying legitimate claims.

Amending HMRC’s current powers is another avenue that could be explored. For example, requiring taxpayers to provide evidence to support a rejection of a revenue correction of an obvious error, making it possible for HMRC to understand the reason for a rejection, which may prevent the need for further enquiry work.

Question 9: What are the challenges relating to claims for relief and credits? How should reform to enquiry and assessment powers for reliefs and credits be approached?

Reform opportunity F: modernising administration and communications

Many of HMRC’s current enquiry and assessment powers were created in a pre-digital era, when responsibility for administration of different regimes was spread across several departments and agencies. The government has invested in HMRC to develop the single customer account, providing new digital services for customers. Alongside this, HMRC is looking at how it can communicate with taxpayers and agents more efficiently and intends to increase the use of digital and self-serve options while providing alternative provision for those who are digitally excluded.

This will require changes to HMRC’s systems as well as the underpinning legislation. At present, statutory notices – such as enquiry closure notices and notices of assessment – must be issued by post to a customer’s last known physical address, which is costly and can cause delays, giving taxpayers less time to respond. The introduction of secure digital communications between compliance caseworkers, taxpayers, and agents and the ability to send statutory notices directly to taxpayers’ and agents’ digital accounts could help to address these issues. They may also create new opportunities for informing taxpayers about what penalties and interest may apply and their appeal rights.

The discussion document Simplifying and Modernising HMRC’s Income Tax services through the tax administration framework sought views on reducing high volume paper communications. The majority of respondents welcomed further digitalisation but cautioned HMRC against moving too quickly. Some respondents raised concerns that digital communications may be overlooked more easily than letters, and that additional prompts may be needed if taxpayers do not log in and view communications within a few days.

Question 10: Are there specific issues relating to compliance activity that need to be considered as HMRC moves to greater use of digital communications?

Question 4

3.  Penalties

Accepted Answer

Introduction

The UK tax system includes a range of penalties, which can be broadly grouped into financial penalties, non-financial penalties, and criminal sanctions. This call for evidence explores opportunities to reform the design of financial penalties in ways that support the review’s objectives as set out in Annex A.

Penalties apply where taxpayers fail to meet obligations created by the tax system. They exist to encourage taxpayers to comply with their tax obligations, to act as a punishment for those who do not, and to assure compliant taxpayers that those who do break the rules run the risk of being worse off. They support HMRC’s compliance strategy by promoting compliance and enabling HMRC to respond robustly to non-compliance.

Financial penalties (referred to as ‘penalties’ from this point on) can take several forms including fixed monetary amounts, and those calculated as a proportion of the potential lost tax or as a proportion of the consideration received by an agent or intermediary. There are many different penalties within the UK tax system, which can be grouped into 3 broad categories:

penalties for failing to meet a time-bound obligation, such as submitting a return or making a payment on time, which are typically automatically applied
penalties that vary according to the behaviour that led to the non-compliance, for example, the behavioural penalties for failing to notify liability to tax and making inaccuracies in returns and documents
penalties for failing to meet regulatory obligations such as failure to keep records or not complying with a statutory requirement, for instance by handling goods subject to unpaid excise duty

The government has recently reformed the late submission and late payment penalties for VAT and plans to extend these reforms to ITSA, Alcohol Duty and other taxes in future years. These reforms penalise the small minority who persistently do not comply, while being more lenient on those who make the occasional slip up. The design of these new penalties benefited from extensive consultation, which the tax administration framework review will consider as it explores options to reform HMRC’s other penalties.

An overview of penalty theory and evidence

Within traditional economic models non-compliance occurs where the benefits outweigh the costs of rule breaking. Penalties alter the costs of breaking the rules, with their impact determined by their severity and the certainty and speed with which they are applied.

The more certain an individual thinks a penalty will be applied and the sooner it is applied, the greater the positive impact it has on behaviour. The severity of the penalty also matters. A balance needs to be struck between a penalty being too low as this may encourage individuals to treat penalties as another cost to be absorbed, and a penalty being too high which may be seen as undermining justice and impact other motivations to comply.

However, traditional models predict higher levels of non-compliance than typically found in practice. More recent research has looked at additional factors that influence compliance, including morality, social influences, self-control, the opportunity to be non-compliant, and attitudes towards the tax system and the tax authority. Behavioural science points to several factors that are likely to influence compliance, including:

communications: the way in which penalties are communicated can have a significant positive impact on compliance, for example by warning customers of penalties before they are applied and by framing penalties as a loss that they can reduce or avoid.[1]
fairness: several studies have shown that penalties are more likely to be effective where they are viewed as fair, with fairness felt in many ways including the perceived proportionality of the penalty, fair treatment of different taxpayers and fair processing of a case.[2]

HMRC small business research found that penalties were only sufficient to change behaviour if they represented a tangible financial impact, were seen to be actively enforced, and felt like a real threat at all levels.

HMRC will seek additional evidence about the effectiveness of penalty regimes as this review progresses.

Challenges

There are several aspects of the current penalty regimes that create challenges for taxpayers, agents, and HMRC. We are sharing some of these to help inform the responses to this call for evidence.

Proportionality

Respondents to the initial call for evidence raised concerns that some penalties, for example offshore penalties and penalties where there is no tax at stake, may be perceived as disproportionate and can result in unfair outcomes. By contrast, the value of some penalties may be too low to encourage compliance. Some businesses and wealthy individuals may see penalties as the cost of buying more time to focus on other things or put their affairs in order. Striking the right balance can be challenging, as what is affordable to some, incentivises others, or may be considered as disproportionally punitive by others.

Complexity

Stakeholders have highlighted that they think the current penalties regime is too complex and would benefit from simplification. This may reflect several factors including the number of penalty regimes that exist, the complexity of individual penalties or groups of penalties, and that penalties are dealt with across multiple pieces of legislation and guidance. Complexity makes it harder for taxpayers, agents, and HMRC to navigate, understand, and explain what penalties exist and when they apply. It can also lead to inconsistencies in treatment depending on the tax regime and makes it more costly for HMRC to administer.

Establishing behaviour

Basing penalties on behaviours helps tailor them to the circumstances of each case, supporting proportionality and fairness. However, this can be time-consuming and costly for HMRC and taxpayers, as compliance caseworkers must gather evidence and form a view of the behaviour involved based on the balance of probabilities. It also affects HMRC’s ability to tackle high-volume non-compliance at pace.

Agents contributing to non-compliance

As set out in recent consultations concerning raising standards in the tax advice market, some tax advisers do not live up to the high standards of behaviour and competence expected of the profession. As well as rare cases of dishonest paid tax agents, HMRC also encounters agents who fail to take reasonable care when acting on behalf of a client including those who admit doing so.

These instances of non-compliance and the costs involved in dealing with them could be avoided. However, HMRC currently has limited means to address careless agents, in contrast to the penalties that apply to taxpayers found to be careless.

Opportunities for reform

Based on an initial review of the main penalties within the UK tax system and responses received to the initial call for evidence, HMRC has identified a number of potential opportunities for reform. Taken together, these opportunities have the potential to shape reforms that could consolidate and simplify penalties in the UK tax system, making them easier to understand and administer while also strengthening incentives to comply and building trust in HMRC’s administration of the tax system.

Reform opportunity G: aligning penalties across tax regimes

The Powers Review sought to introduce harmonised penalties for late filing, late payment, failure to notify, inaccuracies, and certain wrongdoings across HMRC’s regimes. While successful in part, there is still more that could be done – for example, to align late submission, late payment, and inaccuracy penalties across all HMRC regimes.

There may also be other areas that could benefit from modernisation and alignment, such as penalties for failure to keep records. Alignment, where appropriate, could help to simplify HMRC’s penalties, making it easier for customers and agents to understand and engage with, and for HMRC to administer.

Question 11: Which types of non-compliance do you think should have common penalties applied consistently across HMRC’s tax regimes?

Question 12: Are there tax regimes where a differentiated approach to certain penalties may be needed?

In seeking to create incentives to encourage compliance and cooperation, some penalty regimes may have become overly complex, making them hard to understand and costly to administer. Respondents to the initial call for evidence highlighted offshore penalties as being particularly complex, while other respondents recognised the practical difficulties of HMRC determining the underlying behaviour and intentions behind non-compliance.

This review provides an opportunity to simplify HMRC’s penalties to make them easier to understand and administer, while potentially creating stronger incentives to comply at the same time. However, simplification is likely to involve trade-offs, such as choices between simplicity and the tailoring of penalty levels to different circumstances, which may influence perceptions of fairness within the tax system.

For example, one alternative would be penalties for inaccuracies to be based on just a taxpayer’s level of co-operation in putting things right and their history of making inaccuracies in past years, with no behavioural element, such that the penalties increase for each instance where inaccuracies have been identified in previous returns in the last 4 years.

This illustrative approach could be easier and quicker to administer, resulting in shorter compliance checks, as HMRC would not need to seek evidence of the behaviour and intentions that led to the inaccuracy. However, taxpayers who make errors despite taking reasonable care would, unlike now, also receive penalties, potentially at the same level as someone who carelessly or deliberately submitted an inaccurate return.

This may be perceived as unfair and could undermine trust in the tax system. Other alternative models – such as distinguishing between non-deliberate and deliberate behaviour – could deliver a better balance between simplicity, fairness, and effectiveness than the current behavioural penalty regime.

Question 13: Are there particular penalty regimes you think should be simplified? We would welcome views on why and how such penalty regimes might be reformed.

Question 14: What are the potential benefits and challenges of moving away from the current set of behavioural penalties? What alternative models should be explored?

Reform opportunity I: reforming the use of penalty suspension

Several respondents to the initial call for evidence felt that suspended penalties can encourage taxpayers to return to compliance and could be used more broadly. The current rules require HMRC to set conditions to help taxpayers get things right in future years. Agreeing, demonstrating, and checking compliance with those conditions is costly for taxpayers and HMRC, and doesn’t guarantee the taxpayer will maintain those conditions over time.

Alternative models may be simpler and more effective. For example, penalty suspension could apply automatically without conditions for the first non-deliberate or careless failure with the penalty becoming payable if HMRC identifies other instances of non-compliance in the next 4 years. HMRC could still provide advice on how the taxpayer can get things right in future. Alternatively, it may be simpler to replace suspension with warnings for a first offence or penalties that increase over time where taxpayers are repeatedly non-compliant.

Question 15: What alternatives to the current model of penalty suspension do you think should be explored?

Reform opportunity J: proportional fixed penalties

With a few exceptions, most fixed and daily penalties in the UK tax system apply to taxpayers regardless of their income, the resources available to them, or their tax liability. The severity and likely effectiveness of such penalties decreases as income and resources increase. For example, a fixed penalty of £200 is equivalent to 0.8% of the average annual income for a UK income taxpayer after income tax. This may act as an effective deterrent for some individual taxpayers but may be less effective for wealthy and business taxpayers whose after tax income may be in the millions.

Setting fixed penalties so that they rise with income, resources, or tax liability could strengthen the incentives to comply, introduce greater proportionality, and strengthen perceptions of fairness across different taxpayers. There are different ways this could be achieved. For example, penalties could be calculated as a percentage of taxable income and set at the higher of £200 or 0.8% of taxable income, or they could be set with reference to tiers of penalties for different categories of taxpayer like those used by Australia and New Zealand (see Annex B). For those taxes that are not income related, penalties could be set with reference to another measurement of size or resources available to the taxpayer.

Question 16: What merits and challenges would making fixed penalties more proportional to a taxpayers’ income, resources or tax liability present? Are there other models that should be considered?

Reform opportunity K: penalty escalation for continued non-compliance

In most cases, taxpayers are keen to put things right once they are made aware of potential non-compliance. However, in some cases, non-compliance and non-cooperation can continue for months. The design of penalties can influence this by creating incentives to correct non-compliance quickly, minimising the risk that penalties are viewed as just another cost of doing business and shortening the period during which compliant customers are at a disadvantage.

However, penalty escalation can introduce complexity, so trade-offs must be made between simplicity, fairness, and effectiveness. This review provides an opportunity to explore how penalty escalation is used in the UK tax system in line with the design principle that sanctions must be effective in deterring non-compliance and returning the non-compliant to compliance.

Reform opportunity L: penalty escalation for repeated non-compliance

With a few exceptions, UK penalty regimes do not include provision for higher penalties for taxpayers who are consistently non-compliant across tax periods or tax regimes. While there is a simplicity to this, it means first time offenders can be treated the same as repeat offenders. Building in penalty escalation provides an opportunity to differentiate between first time and repeat offenders and strengthen the deterrent effect over time. The recently introduced penalty points system for late VAT submissions is one example of this, where one-off failures do not attract penalties, but repeated non-compliance does. There are other models for penalty escalation, for example penalties could be increased over time for each subsequent instance of non-compliance within a given period, for example a rolling 4 year period.

Question 17: Do you agree that penalty escalation could help to address instances of continued and repeated non-compliance? What challenges could this present?

Question 18: Are there particular models of penalty escalation you think should be considered, and why?

Reform opportunity M: designing new penalties to discourage undesirable behaviour

HMRC comes across a wide range of situations and behaviours during its compliance activities and must be able to deal with all of them. In some cases, those behaviours are at odds with ensuring the legally due tax is paid at the right time: for example, the design and promotion of avoidance arrangements or deliberate and concealed efforts to evade paying tax. Successive governments have sought to address such behaviours, by making tax easier to get right and making it harder to bend or break the rules. This often involves changing the economics involved and giving HMRC tools to deal with different situations.

Gaps in HMRC’s ability to tackle non-compliance put compliant taxpayers at a disadvantage and can undermine perceptions of fairness in the UK tax system and trust in HMRC. As set out in Annex B, the approach taken by other countries illustrates how penalties could support compliance more generally: for example, the application of penalties in instances of carelessness by agents and the adoption of unreasonable tax positions.

Question 19: Are there specific behaviours and situations that you think new penalties could help to address, and why?

Reform opportunity N: modernising administration and communications

HMRC currently administers penalties using several IT systems, with the process varying depending on each system. In most cases, the process involves HMRC issuing a written penalty assessment letter to the taxpayer’s last known address and dealing with appeals manually. In some cases, taxpayers may not be aware of penalties or interest have started to apply until several months later. This may because they may have moved and not told HMRC of their change in address, or because the notifications HMRC issues are sent after the period to which they apply. This includes daily penalties, where notifications are sent after the end of the period within which they apply, and notifications of interest, which are usually issued after the unpaid tax has been paid in full.

Modernisation of these systems and processes would offer the potential to improve awareness of penalties, support their effectiveness, and reduce costs for taxpayers, agents, and HMRC alike: for example, HMRC could provide taxpayers and their agents with more timely, digital communications about the penalties and interest that may apply and how they can reduce or avoid them. Any changes would need to be considered in light of HMRC’s wider digital transformation plans.

Question 20: Where could HMRC communicate in a more timely or effective manner with taxpayers about penalties?

Reform opportunity O: regular uprating of fixed penalties

Many of the UK’s fixed and daily penalties include provision for the penalty amounts to be uprated by secondary legislation. However, these provisions have been rarely used and doing so would involve laying multiple sets of regulations. As a result, the value of many fixed penalties has fallen in real terms, in some cases by more than 50%, due to inflation over time.

Adopting a common approach for defining and referring to fixed and daily penalties of different amounts within legislation would make it easier to uprate penalty amounts in future and maintain the incentives they provide over time. This could, for example, be achieved by creating a central tariff of fixed and daily penalties which is referenced by individual penalty regimes or by adopting the Australian approach of defining penalties by a common penalty unit. Regardless of the model, HMRC believe it would be advisable to update monetary penalty amounts on a regular basis, for example every 5 years, to help maintain their value in real terms over time.

Question 21: Would you support the regular updating of fixed penalties for inflation? What challenges would this present for you?

Reform opportunity P: transparency

HMRC aims to increase transparency and build public trust by publishing data and information on how it performs as the UK’s tax and customs authority. Research suggests that penalties provide a more effective deterrent when they are seen to be applied and enforced. There was also broad agreement between respondents to the initial call for evidence that greater transparency around HMRC’s activities could help reassure taxpayers that they are being treated fairly. This review will consider the publication of regular statistics on penalties as part of any future penalty reforms introduced.

Question 5

4.  Safeguards

Accepted Answer

Introduction

The UK tax system includes safeguards to ensure that taxpayers and intermediaries are treated fairly and in accordance with the law. A taxpayer safeguard can be described as:

a person, structure, or process supporting or enforcing taxpayers’ rights. It may be the mechanism by which those rights are delivered or made available to taxpayers such as protection, scrutiny, or a precautionary measure.

These safeguards can be broadly grouped into 4 types:

safeguards in tax legislation, such as the Taxes Management Act 1970 Part IV and V, which contains provisions on the right to appeal and other protections, such as statutory review
safeguards in non-tax legislation with which HMRC must ensure its own compliance, such as in the Human Rights Act 1998
other safeguards relevant to the administration of the tax system, for example alternative dispute resolution
HMRC’s public law obligations, for example, in relation to its decision-making

This call for evidence explores the following safeguards, looking at the key role they play when disputes arise between HMRC and taxpayers:

alternative dispute resolution (ADR) – where a trained HMRC mediator works with the taxpayer, their representative, and the officer dealing in the case to help address any breakdown in communication or allow exploration of points that may have been misunderstood
statutory review – where a trained review officer from HMRC’s Solicitor’s Office and Legal Services group, who has no prior involvement in the case, reviews the appealable decision in light of the taxpayer’s representations to ensure it is legally and technically correct and in line with HMRC policy. The review officer can uphold, vary, or cancel the decision
appeal to the First-tier Tribunal – where an independent judge or panel receives arguments from the taxpayer and HMRC to resolve points under dispute. There are further rights of appeal to the Upper Tribunal and beyond

A ‘dispute’ can arise at any stage during a compliance check. This typically involves a disagreement between HMRC, a taxpayer, or any other relevant person relating to a decision HMRC has made, for example, differing views on tax liabilities, tax returns, transactions, requests for further information, notices, or arrangements.

HMRC resolves tax disputes using civil law processes and procedures in line with its Litigation and Settlement Strategy.This applies irrespective of whether the dispute is resolved by agreement with the taxpayer or through litigation.

Disagreements can often be resolved quickly by taxpayers and HMRC officers talking through any concerns. However, that is not always possible, and disputes may arise. In most cases, legislation provides a framework for taxpayers to challenge HMRC’s use of powers and penalties through a right of appeal to the tribunal. Statutory reviews and ADR provide an alternative to litigation.

Statutory reviews and ADR are also an opportunity for HMRC to improve quality and consistency in future decision making by reviewing initial decisions, communications, and consequent outcomes after the fact, building trust between HMRC and taxpayers. In appropriate cases, HMRC decisions can be challenged through a judicial review.

Challenges

Responses to the initial call for evidence highlighted that the right to appeal is a strength of the framework, and the view that more could be done to preserve and build on safeguards. There are aspects of existing safeguards that create challenges for HMRC, taxpayers, and intermediaries. We are sharing these as they may help inform responses to this call for evidence.

Balancing clarity and transparency with complexity

Having a variety of safeguards results in a wide range of processes and legislative considerations that taxpayers and their agents may need to navigate. For example, each safeguard needs to be supported with relevant guidance for taxpayers and HMRC staff respectively. Taxpayers will not be familiar with all aspects of tax legislation and may also lack familiarity with the options available to them when disputing a decision.

Exploitation

Safeguards can be exploited by a small minority who may seek to prolong disputes, or actively engage in a dispute, to defer paying the correct tax. This puts compliant taxpayers at a disadvantage and is costly for HMRC. One example is contrived insolvency, where an individual may deliberately appeal to delay enforcement and then dissipate assets into new entities before the appeal concludes, intentionally exploiting the insolvency regime to avoid paying what is owed. This can result in a permanent loss of revenues for the Exchequer.

Opportunities for reform

Based on an initial review of the safeguards within the UK tax system, and an overview of safeguards used by other tax authorities, HMRC has identified the following opportunities for reform.

Reform opportunity Q: aligning how appeals are made

The processes for making an appeal differ between direct and indirect taxes. For direct taxes the taxpayer must first give notice of an appeal to HMRC within 30 days of the decision in dispute. Once an appeal is received this may trigger further discussions between the taxpayer and the HMRC caseworker who made the original decision. If the appeal cannot be settled by agreement, then HMRC may issue a ‘view of the matter’ and offer the taxpayer a statutory review.

The taxpayer then has 30 days within which they can either accept the offer of a statutory review by HMRC’s Solicitor’s Office and Legal Services group or notify the appeal to the tribunal. Also, after the appeal is made to HMRC, the taxpayer can request a statutory review prior to it being offered. For indirect taxes, there is no requirement to give notice of an appeal to HMRC first. When issuing an appealable decision HMRC must offer a statutory review alongside it. The taxpayer then has 30 days within which to choose whether to accept the offer of review or appeal directly to the tribunal.

The differing processes can result in confusion for taxpayers who may be unsure of the difference between an appeal to HMRC, a statutory review, and an appeal to the tribunal. This can also cause misunderstandings relating to when taxpayers have a right of appeal or what steps they may need to take to appeal to a tribunal. This can also affect a taxpayer’s ability to access ADR after a decision has been made.

Applying for ADR in direct tax cases, the application can be accepted if they have already made an appeal to HMRC as detailed above. However, where the case is for an indirect tax regime, taxpayers are rejected for ADR if they have not made an appeal to the tribunal in order to protect their 30 day time limit.

Adopting the direct tax approach across all regimes would give both the taxpayer and HMRC an opportunity to resolve matters by agreement without necessarily needing a statutory review or an appeal to tribunal but also creates additional costs for HMRC and can prolong the resolution of the dispute.

Adopting the indirect tax approach across all regimes could simplify things for taxpayers, intermediaries, and HMRC, making it easier for taxpayers to understand the options open to them and speeding up dispute resolution in some cases. However, it may increase the number of cases taken to the tribunal, with resource implications for taxpayers, HMRC, and the tribunal service.

Question 22: What are the merits and challenges of aligning the appeals process with either the direct or indirect taxes approach?

Question 23: Are there other examples of appeals processes for direct and indirect taxes that could be considered as an alternative approach and why?

Reform opportunity R: aligning payment requirements

For direct taxes, a taxpayer who appeals against a decision may ask for payment of the amount of tax that they believe they are overcharged to be postponed until the appeal is settled. Whereas in cases concerning indirect taxes, before the tribunal may hear a taxpayer’s appeal, any securities or disputed tax must have been paid to HMRC. In cases where this would cause the taxpayer financial hardship, they may ask HMRC to agree that payment be suspended until the tribunal appeal is settled.

In cases where HMRC rejects a hardship application the taxpayer may ask the tribunal to consider their application for hardship. The taxpayer must tell the tribunal their reasons for making a hardship application and provide a list of any documents they intend to produce in support of the application. The appeal will not proceed until the tribunal has decided the outcome of the hardship application.

This can create different outcomes in practice – direct tax liabilities are more commonly postponed whereas indirect tax liabilities are more commonly paid in advance of an appeal.

These differences in part derive from the differences in nature between direct taxes, such as taxes on income and profits, and indirect taxes, such as taxes on transactions and services where the economic burden of the tax is passed down a supply chain. This can cause complexity, making things harder to understand and more costly to administer, particularly where a compliance check concerns more than one tax regime. It also creates different incentives, which may be exploited by a minority of taxpayers to prolong disputes and defer paying their tax liabilities.

HMRC recognises aligning with one consistent approach may not be straightforward. However, given the challenges identified, this call for evidence is an opportunity to consider the rationale for maintaining the existing legislation and the potential merits of and options for reform.

Question 24: What are the merits of aligning payment requirements across regimes where a liability is disputed, and a tribunal appeal is made?

Question 25: Are there specific circumstances where you think the existing differences across regimes are important or desirable to maintain?

Reform opportunity S: improving access to ADR and statutory review

Tribunal cases can be lengthy and costly for taxpayers and HMRC. Taxpayers who opt for legal representation incur additional costs. Greater use of statutory reviews and ADR could help to reduce these costs and resolve disputes more quickly whilst improving taxpayer experience and reducing the need for independent tribunal hearings. To understand this, HMRC commissioned external research on the Statutory Review Process. The research highlighted that a lack of awareness of the statutory review process is the primary reason taxpayers opted to go directly to the tribunal; with 24% not knowing they could have a statutory review and a further 24% not being offered one. It also found that taxpayers would rather speak to someone within HMRC instead of going through the stressful process of a tribunal hearing.

It is worth exploring the creation of a system that specifically encourages take-up of statutory reviews and ADR. For example, HMRC could implement a system where a taxpayer is recommended a statutory review and/or ADR in the first instance. They have the choice to opt out and appeal directly to the tribunal if they wish. The statutory review and ADR processes would be explained, and taxpayers can always query further if they need. This could reduce reliance on lengthy and costly tribunals for both parties, while still preserving taxpayers’ right of appeal.

Question 26: How can HMRC improve access to statutory reviews and ADR? Are there ways to encourage voluntary take-up of these you think we should explore and why?

Question 27: What are the merits and challenges of increasing take-up of statutory reviews and ADR with a ‘recommendation and opt out’ approach?

Reform opportunity T: mandating statutory reviews in certain circumstances

In 2022 to 2023 the tribunal notified HMRC of 12,332 new First-tier Tribunal appeals, of which approximately 14% related to late payment or late filing penalties and surcharges. These are typically simple disputes and potentially could have been resolved with a statutory review or ADR instead of the tribunal.

There could be merit in considering mandating statutory reviews for certain cases. For example, mandating could be implemented for certain penalties, such as late filing, where the facts of the case are simple enough that a similar result could be achieved with statutory reviews, or in cases where the taxes in dispute are under £10,000 while keeping the option of statutory review in other cases voluntary.

Question 28: What are your views on the possibility of mandating statutory reviews in certain circumstances?

Question 29: Are there specific circumstances where you think it would be appropriate or inappropriate to mandate statutory reviews?

Reform opportunity U: withdrawing the option of statutory reviews in certain cases

A minority of taxpayers seek to exploit safeguards that are intended to protect the compliant majority to prolong disputes and defer paying the right tax. This puts compliant taxpayers at a disadvantage and is costly for HMRC where it undertakes statutory reviews into cases which the taxpayer intends to appeal further regardless of the outcome. The option of withdrawing the offer of a statutory review, for example where there are no reasonable grounds for appeal or where the dispute involves an avoidance arrangement, would help address and combat the exploitation of safeguards.

Question 30: Would you have any concerns if HMRC were to withdraw the option of statutory review in some cases?

Reform opportunity V: Digital administration

As part of modernising tax administration, HMRC have recently created a digital appeal service for VAT late filing and late submission penalties. This aims to ensure taxpayers can notify HMRC of an appeal outside of traditional postal or phone service. HMRC’s ‘PAYE for employers’ service allows employers to appeal a PAYE penalty online. Digitisation is a core component of modernisation; this could help build a modern and trusted tax system. This review is interested in exploring any other areas that would particularly benefit from the introduction of alternative channels to lodge and manage an appeal. This may be a digital service or a new service to support those that are digitally excluded and cannot write in.

Question 31: Are there other areas you think would benefit from alternative appeals channels (for example, digital)?

Question 6

5.  Assessment of impacts

Accepted Answer

Year	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
Exchequer impact (£m)	nil	nil	nil	nil	nil	nil

Exchequer Impact Assessment

Publication of the call for evidence has no Exchequer impact. Any Exchequer impact will be estimated following consultation, final scope and design, and will be subject to scrutiny by the Office for Budget Responsibility.

Impacts	Comment
Economic impact	Any economic impact will be estimated following consultation, final scope and design, and will be subject to scrutiny by the Office for Budget Responsibility.
Impact on individuals, households and families	There are expected to be no impacts for individuals at present by publishing the call for evidence. Any future impacts will be fully examined and detailed.
Equalities impacts	It is not anticipated that there will be impacts on those in groups sharing protected characteristics by publishing a call for evidence on compliance reform. Any future impacts will be fully examined and detailed following any developments after the consultation
Impact on businesses and Civil Society Organisations	There are expected to be no impacts for businesses and civil society organisations at present by publishing the call for evidence. Any future impacts will be fully examined and detailed.
Impact on HMRC or other public sector delivery organisations	Publication of the call for evidence is not expected to have any operational and delivery impacts or costs at this stage. Any future funding requirements will be assessed following the call for evidence.
Other impacts	Other impacts have been considered and none have been identified.

Question 7

6.  Summary of consultation questions

Accepted Answer

Enquiry and assessment powers

Question 1: What are the potential opportunities, benefits, and risks of moving to a single set of powers across all taxes?

Question 2: What are the potential opportunities, benefits, and risks of moving to a model that gives greater consistency and alignment to the key assessment and enquiry provisions?

Question 3: What are your views on any potential costs of changes to assessment and enquiry powers?

Question 4: Are there any circumstances or taxes where specific enquiry and assessment powers may be necessary?

Question 5: What would be the impact of greater alignment in the examples mentioned?

Question 6: Are there other potential gaps or mismatches that you think it would be beneficial to address?

Question 7: What are the merits and risks of HMRC introducing a consequential amendment power across periods and tax regimes? Question 8: What are your views on the opportunities and merits of reform in this area?

Question 9: What are the challenges relating to claims for relief and credits? How should reform to enquiry and assessment powers for reliefs and credits be approached?

Question 10: Are there specific issues relating to compliance activity that need to be considered as HMRC moves to greater use of digital communications?

Penalties

Question 11: Which types of non-compliance do you think should have common penalties applied consistently across HMRC’s tax regimes?

Question 12: Are there tax regimes where a differentiated approach to certain penalties may be needed?

Question 13: Are there particular penalty regimes you think should be simplified? We would welcome views on why and how such penalty regimes might be reformed.

Question 14: What are the potential benefits and challenges of moving away from the current set of behavioural penalties? What alternative models should be explored?

Question 15: What alternatives to the current model of penalty suspension do you think should be explored?

Question 16: What merits and challenges would making fixed penalties more proportional to a taxpayer’s income, resources, or tax liability present? Are there other models that should be considered?

Question 17: Do you agree that penalty escalation could help to address instances of continued and repeated non-compliance? What challenges could this present?

Question 18: Are there particular models of penalty escalation you think should be considered, and why?

Question 19: Are there specific behaviours and situations that you think penalties could help to address, and why?

Question 20: Where could HMRC communicate in a more timely or effective manner with taxpayers about penalties?

Question 21: Would you support the regular uprating of fixed penalties for inflation? What challenges would this present for you?

Safeguards