IF PENALTIES ARE TO DISCOURAGE BAD BEHAVIOURS, SURELY THEY OUGHT TO BE TRANSPARENT?

 

BLOG 215

 

IF PENALTIES ARE TO DISCOURAGE BAD BEHAVIOURS, SURELY THEY OUGHT TO BE TRANSPARENT?

 

I doubt that anyone at HMRC reads my blog.  However, they seem to have relented on virtual Christmas parties (see Blog 214).  They now say, “we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditional parties.  Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event will be exempt subject to the normal conditions …  It is important to note that the exemption is to allow for costs of provisions which are generally incurred for the purpose of the event itself …”. 

 

The snag is that it is not clear what this means.  At a traditional party, an employer will normally provide a meal, one Christmas cracker, one mince pie, a few glasses of wine, and an opportunity to dance to music – and of course the opportunity to interact with one’s colleagues.  So “in the same way” seems to allow a meal for one from Deliveroo or Just Eat, a half bottle, or possibly a bottle, of wine, and a band or a DJ available via Zoom or Teams.  Some people speculate that it might cover a Christmas Hamper, but I cannot find online a hamper that will include the ingredients of a meal within the £150 per head limit – it is a de-minimis limit; spend £151 and the whole £151 becomes taxable.  A hamper of sweets and biscuits and a box of mince pies, together with a bottle of wine can be sent within the budget, and I suspect that many employees are considering that, but that does not seem to me to be covered by costs which are generally incurred for a Christmas party.  So, the meal for one from Deliveroo seems to be the only safe bet!  Anything else carries with it the risk that Uncle Rishi Scrooge is going to present the employer with a hefty tax bill in the new year.

 

I mentioned previously that Brent Council had cut off the end of my street so people cannot access it.  This is apparently a government initiative called Healthy Neighbourhoods.  I don’t think my street was previously unhealthy.  Nor does it have much traffic so the barriers could not have done much to reduce traffic.  In practice, Brent being Brent, a couple of weeks after closing off the end of the street they decided to replace the pavements (or rather remove the paving stones and asphalt the footpath, which I assume is much cheaper) so they reopened the street to let the contractor’s lorries through. 

 

They have at last opened local consultation.  I was invited to complete an online form which allowed me to have my say.  However, before submitting the form I had to give my name and address (fair enough), my ethnicity (choose out of 24 – “White: British” was number 19 on the list), whether I consider that I have a disability (I chose none), my age (out of 7 brackets) my sex (curiously out of only male/female or prefer not to say), my religion or belief (out of nine possible), and any sexual orientation (which seems to mean which of 4 categories of people I am most attracted to).  Can anyone tell me what possible relevance this personal information has to do with my views on access to my street?  I suspect it is because an elderly, white English, straight, Christian has virtually no chance of being listened to.

 

But, I digress.  I have been reading an odd HMRC Factsheet called “Penalties for not telling HMRC about Coronavirus support scheme overpayments”.  It tells me that “This Factsheet contains information about the penalties we may charge where there has been a failure to notify an Income Tax Charge relating to the overpayment of certain Coronavirus support payments made under Coronavirus Job Retention Scheme, Self-Employment Income Support Scheme and Eat Out to Help Out Scheme”.  It admonishes that “If you’ve received a Coronavirus support payment that you are not entitled to, you must tell us about this by the end of the notification period [generally 90 days after the date you received the amount you were not entitled to].  If you do not do this, we call this a “failure to notify”.

 

They go on to explain all about penalties and add for good measure “if you deliberately get your tax affairs wrong and we find this during the check, we may monitor your tax affairs more closely”.  We have an enhanced monitoring programme called “managing serious defaulters”; and also that, “we may publish your details if you deliberately get your tax affairs wrong”.

 

Why do I find this odd?  Because, on the face of it, Coronavirus payments have nothing to do with tax, albeit that the payments are themselves chargeable to income tax or corporation tax as the case may be.  So, on what basis do HMRC consider them liable to income tax?  After much searching I found the answer, tucked away in para 8 of Sch 16 to the Finance Act 2020.  This provides that “a recipient of an amount of a Coronavirus support payment is liable to income tax under this paragraph if the recipient is not entitled to the amount in accordance with the scheme under which the payment was made”.  The paragraph goes on to ensure that such an amount is not included in the taxpayer’s income but is charged to income tax separately.  It also provides that the amount of income tax chargeable is an amount equal to the overpayment (para 8(5)), i.e. it imposes a 100% income tax on it.  Paragraph 12 then imposes the failure to notify penalty under TMA 1970, but excludes the application of the various standard exceptions from the paragraph.  Paragraph 13 provides that where the person knew at the time the income tax first became chargeable (normally the date it was received) that he was not entitled to the payment, the failure to notify is to be treated as deliberate and concealed (which attracts a penalty of up to 100% of the tax).

 

HMRC can publish details of deliberate tax defaulters only where “in consequence of an investigation conducted by HMRC” he has incurred a relevant tax penalty and the potential lost revenue in relation to the penalty exceeds £25,000.  If a taxpayer discloses the overpayment to HMRC outside the 90-day period and tells them the amount of the overpayment, it is doubtful that the penalty will arise “in consequence of an HMRC investigation”.  The potential lost revenue in relation to an overpayment is of course the amount of the overpayment.

 

The purpose of penalties is generally accepted as being to discourage undesirable behaviour.  But they can do this only if people are aware of them at the time they adopt the behaviour.  Tucking away a penalty provision in the middle of a Finance Act Schedule that is expressed to deal with the “taxation of Coronavirus support payments”, strikes me not only as ineffective as a deterrent but also as sharp practice, which I would not expect a government to countenance.  However, I am fast coming to the conclusion that Mr Sunak cares little, if at all, about treating taxpayers fairly.  Perhaps someone ought to remind him that taxpayers are also voters!

 

ROBERT MAAS