HMRC, like many organisations, is undergoing a journey to adapt itself and make sure it is fit for purpose in our increasingly digitized world. This is, broadly speaking, a very welcome move as the potential to increase efficiency and customer service is huge. However, the nature of what HMRC does means the approach needs to be detailed, methodical and have an absolutely unwavering focus on data security. This is simply too important not to get one hundred percent right. The recent HMRC consultation on this generated significant interest and respondents were positive about the early engagement. The consultation document, titled ‘HMRC Penalties: a Discussion Document’, was published on 2^nd February 2015 and outlined the detail of five broad principles that would underpin any new penalty regime. These principles should provide reassurance to HMRC customers in light of any changes. The proposed principles are:

1. The penalty regime should be designed from the customer perspective, primarily to encourage compliance and prevent noncompliance. Penalties are not to be applied with the objective of raising revenues.

2. Penalties should be proportionate to the offence and may take into account past behaviour.

3. Penalties must be applied fairly, ensuring that compliant customers are (and are seen to be) in a better position than the non-compliant.

4. Penalties must provide a credible threat. If there is a penalty, HMRC must have the operational capability and capacity to raise it accurately, and if HMRC raise it, they must be able to collect it in a cost-efficient manner.

5. Customers should see a consistent and standardised approach. Variations will be those necessary to take into account customer behaviours and particular taxes.

The consultation closed on 11^th May 2015, and received over 100 responses. The majority of these were in general agreement with the principles outlined and reiterated the point that an ideal penalty system is one that is “simple, flexible, proportionate, appropriate and tailored.” There were also specific comments about the detail of the proposals, particularly around existing penalties for failing to file or pay on time, or for not submitting accurate documents. In March 2015 HMRC published ‘Making tax easier: The end of the tax return’, a document which outlined how the customer experience would be significantly enhanced by online capabilities, including being able to manage tax via a digital account. This is a big step towards a modern tax system that meets, and even exceeds, customer expectations in the digital world. In theory, this should make a big difference by providing individuals and businesses with instant access to their data wherever and whenever suits them. It will also allow the relationship with these parties and HMRC to be tailored according to their needs and expectations. The next steps are for HMRC to continue with their transformation project, taking into account the feedback they have received on what has been proposed so far. With specific regard to penalties, the thinking is that the digital opportunities will help customers meet their tax obligations. That said, HMRC recognise that there will still be some who, for whatever reason, do not abide by the rules, so an effective penalty regime will continue to be a key part of the HMRC compliance strategy.