HMRC looks at Making Tax Digital alternative late submission penalty modules

Although the government has yet to make any formal announcement following the recent general Election, the Making Tax Digital programme for business is still expected to be rolled out by April, 2018.

Making Tax Digital programme to be rolled out by April, 2018

What penalty charges businesses would incur for late payment submissions has been the subject of much debate over recent months. It is unclear as things stand who would face penalty charges for late submission, and what those charges would be. So to address this issue, HM Revenues & Customs has been fine-tuning the late submission and late payment system. It may come as some comfort to businesses to learn that any new late submission/payment system will not be introduced until April, 2019, thereby giving taxpayers the chance to familiarise themselves with the system before it is introduced.

So what late submission/ payment systems are being considered by HMRC? Well, over the course of the last few months – from 20th March to 11th June, 2017 – HM Revenues & Customs has been collecting feedback on 3 possible alternative systems:

Points-based system

Under this system, taxpayers would receive a point every time they fail to file their tax returns on time. Once a certain number of points have been accumulated – a figure as yet unspecified – a penalty charge would be triggered. Once a period of compliance has been achieved, the points would be reset to zero, so that the process could begin again should there be any further late submissions.

Regular review system

This is an HMRC automated regular review of a taxpayer’s compliance record. The model would see taxpayers given penalties based on their compliance record, although there would be no penalty for the first misdemeanour during the first set period.

Suspension of penalties system

Under this system a taxpayers would be granted more time to complete their submission and thus avoid any penalty charges. In the same way as the regular review system, a taxpayer would not receive a penalty charge for their first failure.

Although the consultation primarily focused on the late submissions model, it also considered whether using penalty interest as a sanction for the late payment of corporation tax, income tax and VAT was reasonable. HMRC already charges 2.75 per cent late payment interest for the main taxes and duties: however, it differentiated between the two penalties on the grounds that late payment interest is technically not a penalty for late payment.

The Association of Taxation Technicians (ATT) criticised this last option as it argued it would only cause unnecessary confusion, and claiming it was simply ‘a distinction without a difference’. Yvette Nunn, Co-chair of ATT’s technical steering group said:

“On late payment interest, we see no practical merit in HMRC simultaneously charging two different rates of interest on the same overdue tax. Simplicity and effectiveness both point to the benefit of a single penalty rate. In terms of timing, we think the penalty rate should apply once the tax is overdue by 30 days, rather than the 14 days proposed by HMRC.”

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