HMRC has recently announced the first in-year penalties notices to employers with fewer than 50 employees who missed the deadline for sending PAYE information to HMRC, but said it will not be issuing penalties automatically.  Instead it will conduct risk assessments to identify the most serious cases. This follows the announcement that officials have been told to accept ‘reasonable excuses’ for late submission of income tax self assessment returns at face value.

Natalie Miller, president of the Association of Taxation Technicians (ATT), said:  ‘Clearly HMRC’s approach is driven in part at least by pragmatism. They are finding it difficult to cope with a system that issues hundreds of thousands of fixed penalties, in particular where taxpayers don’t pay them and therefore resources have to be put into chasing very small amounts.’

However, Miller cautioned that HMRC should make sure to communicate to ‘first time late filers’ why they are being offered this period of grace from penalties.

‘If HMRC do not explain their approach then there is the concern that some of these employers may end up becoming “serial late filers” because they will see the penalty system as an empty threat. The system has to retain its ability to influence behaviour and so the employers who won’t be receiving their penalties due to this new approach need to be made aware of the reason why,’ Miller said.

Miller said the increasing digitisation of HMRC’s systems should make it easier to identify the serial late filers and also those who make multiple appeals, which should ensure the new approach does not result in a rise in late filing.

Colin Ben-Nathan, who chairs the CIOT’s employment taxes sub-committee, said: ‘HMRC’s statement that they want to focus on educating employers about their filing obligations is also welcome. Tax advisers are keen to work with HMRC to educate business about good practice and support them in improving their systems and complying.’

Anthony Thomas, chairman of the CIOT’s Low Incomes Tax Reform Group,  pointed out that this will become a priority with the advent of universal credit, with  the DWP needing to have access to prompt and accurate PAYE data in order to ensure that employees who claim the benefit receive the right amount at the right times.

‘Universal credit is uniquely time-sensitive and depends on the employer providing HMRC with prompt and accurate data about payments of wages and salary. While relaxing the penalties regime, therefore, HMRC and DWP should both be proactive in educating employers as to the importance of prompt submission in the interests of their employees, and make the online systems as easy and intuitive as possible particularly for smaller employers,’ Thomas said.

There was a broad welcome for HMRC’s new pragmatic and proportional approach from tax advisers. The professional bodies said they  would also like to see HMRC to develop the new approach to penalties  further  in order to cut cost and increase compliance rates, with Miller stating that ‘there is a real opportunity to create a penalty regime that makes much better sense than parts of the system that we have at the moment.’