Newsletter 1st July 2024

It’s the first day of July, which means we are officially halfway through 2024 (scary) and what an interesting week lies ahead with the general election this Thursday 4th July.? Will the option poles be correct or will there be a surprise?? I wonder how many of us will stay awake on Thursday night to watch the results come in, or will we all simply just wake up either to the inevitable or to another surprise?

As I say each week there is always so much happening in the sphere of tax and this week is no exception as our very own Jon Golding has had another article printed in the latest edition of Tax Advisor magazine Please take a look at page 40 where Jon discusses Moving abroad and tax-free pensions.?

Did you know pensions can be paid gross under double tax treaties when taxpayers relocate abroad for work or retirement, though there are exceptions that must be considered? Jon is very knowledgeable in many areas of personal taxation and very much enjoys looking at and considering the available options within the legislation, as I have said before I am very proud to have him on the team.?A round of applause for Jon as this is now his second article this year.

Addressing Unfairness in Tax Penalties: A Call for Reform

For any incoming government, the in-tray is likely to be overflowing with issues needing attention. Among these, there is a significant opportunity to address perceived unfairness in the tax system, specifically within the tax return penalty regime.

A Freedom of Information (FOI) request submitted by RSM UK revealed that for the 2021/22 tax year, HMRC initially issued approximately 155,000 late filing penalties to individuals earning under ￡12,570. This income level is below the personal allowance threshold, meaning these individuals typically have no income tax liability. Despite this, around 95,000 of these low-income individuals were penalised ￡100 for the late filing of their self-assessment or partnership tax returns.

While many of these penalties were subsequently cancelled, the initial issuance of these fines raises questions about the fairness and efficiency of the current system. Of the 155,000 penalties, around 60,000 were overturned, highlighting potential systemic issues.

Several factors can lead to the cancellation of a ￡100 late filing penalty, including valid appeals to HMRC within 30 days of receiving the notice. However, ignorance of the requirement to submit a tax return is generally not accepted as a reasonable excuse.

The data suggests that those with the lowest incomes are disproportionately affected by these penalties. For the 2021/22 tax year, 8% of individuals earning under ￡12,570 received a ￡100 penalty, reducing to 5% when considering only those penalties that were not cancelled. In contrast, for higher-income individuals with no tax liability, the percentage penalised drops to around 3%.

This discrepancy implies that low-income individuals are more likely to be unfamiliar with self-assessment rules and may mistakenly believe that no tax return is required if there is no tax due. This lack of understanding results in penalties that seem disproportionately harsh, especially when there is no tax liability.

A reasonable argument can be made for the necessity of deterrents to ensure compliance with tax return filing obligations. Prior to April 2011, late filing penalties were waived if all tax was paid on time. However, this led to some individuals delaying their tax return submissions despite paying their taxes promptly. The 2011 reform aimed to fine such persistent late filers.

Currently, further reforms to the self-assessment penalty regime are underway, including the introduction of a points-based system aimed at penalizing frequent offenders rather than those who miss the deadline once inadvertently. Additionally, HMRC has revised the criteria for who must submit a tax return, potentially reducing the number of individuals subject to fines.

Despite these changes, HMRC’s data shows that ￡9.5 million was raised in penalties from those least able to afford it, with no financial loss to the Treasury. This situation calls for a re-evaluation of the penalty system to ensure it is fair and proportionate.

The findings from RSM UK's FOI request highlight a significant issue within the current tax penalty regime. While reforms are in progress, they may not go far enough to address the unfair penalisation of low-income individuals. A relatively simple legislative change could make a substantial difference, ensuring that penalties are proportionate and fair, particularly for those who can least afford them. This is an opportunity for the government to demonstrate a commitment to fairness and equity within the tax system.

Happy days

The end of June always marks Glastonbury and although I have not been successful in obtaining a ticket for many years now I always watch the TV coverage and fondly remember the overall experience along with the amazing artists I have been fortunate to see along the way. In fairness, I have probably forgotten how many bands I have seen on my numerous visits to Worthy farm.

For this week's #playlist, I thought I would put together a selection of the artists I have been fortunate to see that came to mind straight away, and tunes that will sound great in the garden as we all sit outside making the most of the warm weather.

If you don't ask you don't get

After watching a YouTube video last week I was reminded of how bad as business owners we are (myself included) of asking for reviews and testimonials from our clients. There are so many places these days where a review can be left however, the most obvious one has to be Google.

Over the next week, I am going to be writing to all my clients to ask them if they would consider reviewing Tax Matters with 5 stars and some kind words.

I would ask that all of you consider doing the same as the recent statistic I heard said that 12% of your customers leave reviews but, 93% of your potential customers read them before contacting you. Statistics like that certainly make you think.

If your reading this before the email arrives then please follow the link and leave me a kind 5-star review today, as it is very much appreciated.

I hope you have enjoyed this edition of my newsletter, and found it both enjoyable and informative, if you have any suggestions or comments then please let me know?it is always good to hear from you. In addition to the newsletter, I am also updating the website, so please take a look from time to time to see what is happening.

If I or the Tax Matters team can be of any assistance to you, your family or your friends then please do not hesitate to contact me?at 01442 828006 or [email protected]