Revenue Powers and Penalties

Powers

From the 1 April 2009 HMRC will be aligning its powers across all taxes and duties. In a nutshell they will be able to exercise the following powers:

. a power to inspect records required under the record-keeping legislation – this restricts the existing VAT and PAYE inspections to statutory records and introduces a new power of inspection for direct tax;

. a power to require supplementary information which is relevant to establishing the correct tax position;

. a power to require third parties to provide information which is relevant to establishing a taxpayer’s correct tax position;

. a power to visit business premises and to inspect records, assets and premises;

. removal of VAT and PAYE powers to undertake inspections at private homes without taxpayer consent;

. appeal rights against any penalty, and against information notices which have not been pre-authorised by an appeal tribunal;

. penalties for failure to allow an inspection and failing to comply with an information notice, including a tax-geared penalty which can be imposed by the new upper tier tribunals; and

. an updated criminal offence of destroying or concealing records requested under a notice authorised by a tribunal.

An additional power that has recently been granted to HMRC is the right to intercept phone calls – “bugging” powers! The Customs branch have always had this right, and it is now rolled out to investigations that involve all taxes. The powers were granted in the Serious Crimes Act 2007; the relevant implementation date was 15 February 2008.

Penalties

The Budget March 2008 included provisions that will enable the Revenue to introduce a single penalty regime across all the taxes, levies and duties they administer.

The changes are likely to commence for all incorrect return periods commencing on or after 1 April 2009, where the return is due to be filed on or after 1 April 2010.

New penalties for failure to notify the commencement of a new taxable activity are expected to have effect for those that arise on or after 1 April 2009.

The penalty will be determined by the amount of:

. the tax understated,
. the nature of the behaviour giving rise to the understatement, and
. the extent of disclosure by the taxpayer.

The use of suspended penalties will be extended.

There will be no penalty where a taxpayer makes a mistake, but there will be a penalty of up to:

. 30 per cent of the tax understated for failure to take reasonable care;
. 70 per cent of the tax understated for a deliberate understatement; and
. 100 per cent of the tax understated for a deliberate understatement with concealment.

The measure will provide for each penalty to be substantially reduced where the taxpayer makes a disclosure (takes active steps to put right the problem), more so if this is unprompted.

. For an unprompted disclosure of a failure to take reasonable care the penalty could be reduced to nil.
. Where a taxpayer discloses fully when prompted by a challenge from HMRC each penalty could be reduced by up to a half.

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