Accountancy body responds to HMRC consultation

Emphasising the principles of simplicity and stability, ACCA has called for HMRC to implement a system that supports compliant taxpayers while effectively targeting criminal abusers of the tax system. This is in response to HMRC’s consultation on reforming behavioural penalties within the UK tax system.

It is ACCA’s long-held view that simplicity, certainty, and stability are the three cornerstones of a good tax system. When taxpayers and their advisers are unclear of what is expected, distortions arise, creating the potential for both mistakes and deliberate rule breaking.

ACCA warns against designing a system primarily around the most serious offenders, recommending instead a more balanced approach that applies proportionate penalties and promotes voluntary compliance.

Objectivity must be at the forefront of changes to penalty rates and those concerning escalation. ACCA recommends commissioning independent research to provide an objective starting point.

Key suggestions include:

• Greater emphasis on the quality of information disclosure, including an individual’s cooperativeness and timeframes in which information is supplied. Given the significant volume of data HMRC holds, ‘prompted’ and ‘unprompted disclosure’ seem less relevant in a digitalised environment.
• HMRC should incentivise good behaviour while ensuring that bad behaviour gets punished – however reduced penalty amounts for repeated bad behaviour could arguably be seen as rewarding bad behaviour.
• Changes to penalty rates should be grounded in independent research to ensure fairness and transparency.
• Penalties related to offshore tax non-compliance should be calibrated based on the taxpayer’s intent and the degree of concealment involved.
• ACCA sees no evidential basis for the introduction of non-financial penalties. Given the existing powers already available to HMRC, not to mention the wider reform to the tax administration framework, this would be an impractical approach.

Glenn Collins, head of technical and strategic engagement, ACCA, said: “HMRC’s reform efforts must ensure that penalties are fair, proportionate, and designed to encourage the right behaviours. The focus should be on simplicity, certainty and stability – both for taxpayers and the authorities, so that honest mistakes aren’t punished. We support a system that promotes cooperation and voluntary disclosure, but which also includes robust responses to wilful non-compliance.”

ACCA is keen to ensure that the tax system effectively caters for the majority of taxpayers who are honest and compliant. A survey by ACCA found that just 43% trusted their respective tax authorities, with 29% indicating that they either distrusted or highly distrusted them.

Joe Fitzsimons, regional lead, policy and insights, ACCA, added: “Objectivity must be at the forefront of changes to penalty rates and those concerning escalation. We are recommending commissioning independent research to provide an objective starting point. We believe it’s essential the rules support those who want to get things right, not penalise them for navigating a complex system. Reforms should strike the right balance – targeting deliberate evasion while encouraging openness and early engagement from taxpayers.”

ACCA’s response also addresses HMRC’s specific consultation questions, offering practical guidance on areas including penalty reductions, the appropriate rate of penalties, how offshore non-compliance should be treated, and the use of non-financial sanctions.