HMRC has started a review into the complexity of its enquiry and assessment powers and penalty systems. The aim of the review is to ensure a fairer, more consistent handling of enquiries and to reduce unnecessary costs.

Options under consideration include standardising enquiry and assessment powers across all taxes to match practices in countries like Ireland, Australia and Canada. This could involve adopting a uniform approach where possible while recognising that certain taxes might need bespoke treatment.

According to HMRC, this could allow for "greater consistency" across the tax system. However, the tax authority noted that such changes would likely result in transitional costs for taxpayers.

HMRC is also contemplating updating its communication methods with taxpayers, moving from postal letters to more secure digital interactions. This would require taxpayers to access notifications through a digital tax account, potentially speeding up responses.

The consultation also covers penalty reforms, including late submissions, payments, inaccuracies, and adjusting fixed penalties for inflation every five years.

One idea is to base penalties solely on each taxpayer's cooperation and past inaccuracies. A more radical suggestion is to scale penalties according to a taxpayer's wealth, enhancing compliance incentives.

Additionally, HMRC is reviewing its approach to suspensions, considering replacing them with warnings for first offences or escalating penalties for repeated non-compliance, similar to the VAT penalties system.

Concerns about the cost and accessibility of dispute resolution mechanisms are also being addressed. Furthermore, HMRC hopes to tackle procedural challenges that complicate the identification of tax insufficiencies, often leading to litigation.

The consultation is open for comments until 9 May 2024.

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