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ICAEW urges major simplification of tax penalties framework

Author: ICAEW Insights

Published: 07 May 2024

The Tax Faculty welcomes the opportunity to reform tax administration but warns of significant challenges in implementing some of the changes. Existing safeguards should be publicised further.

ICAEW’s Tax Faculty has responded to the government’s call for evidence on possible reforms to HMRC's enquiry and assessment powers, penalties, and safeguards.  

The faculty agrees that a wholesale review of enquiry and assessment procedures would be timely. It is clear there are some areas of the existing tax legislation that could be improved. However, the starting point should be to focus on HMRC’s application of the existing rules. Efforts should be made to align rules across the taxes where differences cause problems for HMRC, taxpayers and agents. Once the revised processes are enacted, the government should resist amending them for several years to give them time to bed in. 

ICAEW urges HMRC to reconsider comments included in the call for evidence, which suggest that agents are providing a barrier to the smooth running of the tax system. While there will inevitably be some parties that seek to abuse the rules, HMRC should acknowledge that the tax profession plays a vital role in the proper functioning of the tax system.  

Enquiry and assessment powers 

The possible reform opportunities identified by HMRC include moving to a single set of enquiry and assessment powers. ICAEW has received mixed feedback on whether this would be possible. The way that different taxes operate may require a different assessment regime to apply to them. HMRC should take this into account in considering whether to take this measure forward. It may be appropriate to revisit this question once making tax digital for income tax self assessment is in place and is established.  

Other reform areas include aligning powers and introducing a consequential amendment power across periods and tax regimes. The faculty is broadly supportive of greater alignment in some of the examples given (eg, discovery determinations). However, in other examples, the faculty believes there is already greater alignment than the call for evidence suggests. The need for a consequential amendment power as envisaged in the call for evidence is unclear. Further, introducing a time-unlimited amendment power would remove finality and certainty for taxpayers.  


HMRC has identified a number of reform opportunities which it believes could consolidate and simplify penalties in the UK’s tax system. The faculty believes that areas where change would have the biggest impact, and where there is most complexity, should be considered first.  In addition, penalties should be designed with the intention of incentivising compliant taxpayer behaviour, and not financially penalising wrongdoers.  

The faculty believes that aligning penalties for late filing, late payment and failure to notify across all taxes is the biggest  simplification opportunity. Specific proposals put forward by ICAEW include refunding late filing penalties where the final tax liability is less than a fixed amount, having a consistent definition of a ‘prompt’ for  penalty and other purposes and removing specific penalties applicable to offshore and asset-based matters.  


The faculty supports introducing an aligned treatment for statutory review applications across the different heads of tax. As well as making these processes easier to understand for taxpayers and agents, alignment would make it easier for HMRC to train staff, move them between teams and automate processes. The preferred route would be to adopt the direct tax approach as this would reduce unfairness in the tax system. In indirect tax cases, having to pay the disputed tax upfront can deter less-wealthy taxpayers from pursuing reviews.  

HMRC’s advertising of the statutory review and alternative dispute resolution (ADR) options available could be improved considerably as these are not that well-known. The faculty has suggested measures for improving the take-up of statutory review and ADR. ICAEW welcomes the proposals to mandate statutory review in some circumstances, providing HMRC can deal with the increased demand on its resources. The faculty is concerned about proposals to restrict access to statutory review in cases HMRC considered to be egregious tax avoidance. 

The Tax Faculty

ICAEW's Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

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