Thank you, convener. I, too, congratulate the new deputy convener on his appointment. I am looking forward to working together with the committee for the common good of Scotland in my new role. For clarity, I point out that, as my entry in the register of members’ interests states, I am on the roll of Scottish solicitors, although I am not a member of the Law Society of Scotland.
The Revenue Scotland and Tax Powers Act 2014, which for the remainder of this opening statement I will refer to as “the act”, enables Revenue Scotland to apply penalties where a person fails to submit their tax return by the due date, which is known as the filing date. In a standard house purchase, for example, the filing date is 30 days after the transaction has completed. The available data suggests that the overwhelming majority of taxpayers submit their LBTT—land and buildings transaction tax—returns on time.
However, where that is not the case, the act provides for penalties to be charged at four separate points, all of which seek to encourage compliance and ensure that taxpayers submit their tax returns on time, or failing that, as quickly as possible. First, an initial £100 penalty is charged if a return is not made by the filing date. Secondly, if the failure to make a return continues for a further three months, daily penalties apply at £10 per day for up to 90 days, which is a total of £900. It is to those daily penalties that the regulations relate. Thirdly and fourthly, the act provides for tax-geared penalties where returns are more than six months and more than 12 months late.
In that context, the regulations that are before the committee amend section 161 of the act to provide that a daily penalty can be charged by Revenue Scotland through a single penalty assessment notice.
Committee members will be aware that the regulations were introduced in response to a decision by the Upper Tribunal for Scotland that was published last July, which related to a scenario in which Revenue Scotland did not know that a return was due until it was submitted. In that case, the Upper Tribunal noted that, for the daily penalties to be valid, the legislation required two separate notices—a notice of liability and a notice of assessment—to be issued. It concluded that a single penalty assessment notice, as used by Revenue Scotland for daily penalties, was not sufficient for those purposes, although the information contained in the single notice was sufficient in terms of what each notice required.
Critically, however, the tribunal noted that requiring Revenue Scotland to issue two separate notices would
“serve no useful function in the case of many LBTT penalties for late returns and, where it is unnecessary, would be potentially confusing for the taxpayer and could involve him or her in making a redundant, additional appeal.”
The tribunal went on to note that, if the difficulties were sufficiently serious, a change to the penalty provisions might be required. We agree with that view, and we introduced the legislation accordingly.
The sole purpose of the regulations is to enable Revenue Scotland to issue a single penalty notice when a return is sufficiently late for daily penalties to apply. The regulations will not change the obligations that are placed on taxpayers nor the number of penalties that can be charged.
Finally, it may be helpful to the committee to note that there are two relevant overall scenarios in which daily penalties are charged. One is a scenario in which Revenue Scotland knows that a tax return is due; the other scenario is one in which it does not.
The first scenario applies when a taxpayer is due to submit a return associated with the three-yearly review of the tax position for non-residential leases. In that situation, Revenue Scotland will know that a return is due because of the effective date of the initial transaction that is contained within the original tax return. As set out in its letter to the committee, Revenue Scotland issues a series of communications to taxpayers in advance of the date on which a return is required and subsequently. All are clear about the daily penalty provisions. Critically, those processes will continue in the future, regardless of the legislation.
Under the second scenario, in which Revenue Scotland is not aware that a return is due, as is the case with the majority of LBTT transactions, it is, of course, not possible to issue a warning letter in advance of the return being made. Although that is the case, the LBTT legislation is clear on the requirement for a tax return to be submitted, and the act is equally clear on the circumstances in which penalties will apply. As such, taxpayers and their agents should be aware of the requirements that are placed on them and the consequences of failing to meet those requirements. It is important to remember that the data indicates that the overwhelming majority of taxpayers submit their returns on time.
Although I recognise that stakeholders have expressed concerns about the use of daily penalties more generally, the changes in the Scottish statutory instrument respond directly to a suggestion that was made by the Upper Tribunal judge, and they have been introduced to avoid potential confusion to the taxpayer.
I hope that that is a helpful summary. I am happy to take questions from the committee.