HMRC Penalty Surcharges

Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 29th November 2016.

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Photo of Gordon Henderson Gordon Henderson Conservative, Sittingbourne and Sheppey 12:00 am, 29th November 2016

What steps he is taking to reduce the effect on small businesses of penalty surcharges levied by HM Revenue and Customs.

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

Ultimately, the Government want to collect the right tax at the right time, not charge penalties. As it happens, we are currently reviewing ideas for how we charge penalties. A discussion document was published last year, and we recently consulted on a new approach to sanctions for late submissions of returns and late payment of taxes. We are currently considering all the comments received and if my hon. Friend wants to contribute to that process, I will be happy to look at any detailed points.

Photo of Gordon Henderson Gordon Henderson Conservative, Sittingbourne and Sheppey

I am more than happy to contribute. A small building company in my constituency has paid large VAT bills on time since 1972. However, on one occasion, because of a mistake by a member of staff, the company’s VAT return was one day late and the company was hit with a totally unfair £12,000 penalty charge. During the review, will Ministers consider changing the penalty charge system so that they are levied only on businesses that repeatedly fail to pay their VAT on time? “Three strikes and you’re fined” might be a good system.

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

I note what my hon. Friend says with interest. It is worth clarifying that the VAT default surcharge system already contains safeguards to help businesses avoid penalties and that no business incurs a surcharge the first time it makes a late payment. My hon. Friend may want to write to me about that individual case because I cannot address it here in the House. The current system of surcharges is structured in a way that allows the smallest businesses up to four late payments without incurring a surcharge, so I suggest that he writes to me with the details, which I will pass on to HMRC.

Photo of Sammy Wilson Sammy Wilson Shadow DUP Spokesperson (Treasury), Shadow DUP Spokesperson (Work and Pensions), Shadow DUP Spokesperson (Education)

The new “Making tax digital” arrangements, which will require businesses to submit quarterly returns, increase the likelihood of sanctions being imposed following late returns or non-submission. How does that fit in with the Government’s promises to make it easier to start a business, to cut red tape and to make businesses more competitive?

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

I do not recognise the hon. Gentleman’s description of “Making tax digital”—an important reform that we will consider carefully. We said in the autumn statement that we will respond in the new year, but it is not right to say that there will be four returns; information will be digitally uploaded to the system more regularly. It is also the case that one of the driving forces behind “Making tax digital” is to help small businesses to get things right first time, because there is an awful lot of error that often costs businesses money that they would otherwise be owed.

Photo of Theresa Villiers Theresa Villiers Conservative, Chipping Barnet

I must press the Financial Secretary on that point. I appreciate that the “Making tax digital” programme does have advantages, but many small businesses are worried about quarterly reporting. Will she consider making it voluntary rather than mandatory?

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

I reiterate to my right hon. Friend that it is envisaged that people will upload information quarterly, but that is not the same as four tax returns a year, something which got some currency at the time. Several significant concessions regarding the number of small businesses that were exempt from the system were announced over the summer, but I am listening carefully to the points being made both by colleagues in the House and by some of the important stakeholders with whom we have been engaging. That is why we said that we will respond in the new year. We do not want to rush our response; we want to consider all the points carefully.