Practice Editor AccountingWEB
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MTD: Late payment sanctions reviewed

24th Mar 2017
Practice Editor AccountingWEB
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Three options

In a new consultation, HMRC has set out three possible models to penalise late payments and submissions under Making Tax Digital (MTD).

The Revenue is digging further into late payment penalties after respondents to the last consultation were divided on whether a single points total covering all submissions was the right approach. Meanwhile, the current income tax self assessment late filing model would result in a large number being “mechanistically” charged penalties. Therefore, the Revenue needs a “simple to understand” penalty model that is a fixed amount rather than tax-related.

This consultation also confirms that taxpayers will be given a minimum of 12 months to become accustomed to the new MTD regime before they will be caught out by late submission penalties.

While each model presents a slightly different approach to tackling late payments the models do share some commonalities: “All the models will only apply where a customer has failed to meet an obligation and does not have a reasonable excuse for doing so,” said the consultation. “There will be a right of appeal against all penalties and the recording of failures that do not, immediately, give rise to a penalty.”

HMRC has proposed the following three models, but will introduce just one:

Model A: Points-based

The first model is a revised version of the points-based model proposed in the last consultation. Under this incarnation, the taxpayer will incur a point every time they fail to provide a submission on time. HMRC explains that when the points reach a set threshold, the taxpayer would be liable for a penalty.

However, the taxpayer could see the points reset to zero if they sustain a period of good compliance. “The reason for requiring a period of sustained good compliance before resetting the points total to zero is to encourage the habit of providing submissions on time,” the consultation said.

HMRC will continue with the proposed 24-month period of sustained good compliance, despite respondents to the last consultation arguing that 24 months was too long.   

Model B: Regular review of compliance

The second model is powered through an automated review over a set period. HMRC would look at the customers’ compliance over the time period and calculate any penalty based on the number of failures at the time of the review. The compliance review would occur once a year.

When it comes to one off oversights, the consultation said that the first failure would not be liable for a penalty.

Model C: Suspensions of penalties

The taxpayer can avoid a penalty under this model if they can provide the late submission within a specified time.

The first time taxpayer fails to meet the submission on time they will receive a note advising them on the failure and given the opportunity to rectify the issue. The second time this happens the taxpayer would again be notified and given the opportunity to pay before a penalty is applied, but the government doesn’t want to appear too lenient. So the number of times a penalty is suspended, it says, needs to be limited.

Community response

Already the consultation has caused a discussion on Any Answers. AccountingWEB member Young Loch judged the document as having “some good and bad”.

But the member concluded, “if HMRC want credibility in applying penalties for late quarterly filing then they should simply extend the quarterly submission deadline (where it applies to Income and Corporation Tax) beyond just one month to remove that excuse because, and I don't think I speak alone, that is the one barrier that makes the whole concept of MTD such a nightmare to consider.

You can respond to the consultation by email to [email protected].

Which of the three penalty models proposed do you consider the best? Are you going to respond to this consultation?

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Replies (2)

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By adam.arca
25th Mar 2017 09:03

I find the whole thought of MTD depressing. It is, however, beginning to look like an unstoppable, runaway train. And to continue the analogy, it's a runaway train on an unfinished track: we know (well, we think we know) where they want to go with it but we haven't a clue how they're going to get there and it's obvious that a) they're still laying the track right now through virgin, hardwood forest and b) the train engineer is a bumbling moron who's never done it before.

What I find even more depressing, though, is this particular consultation. I appreciate that MTD apologists will say they have to do the groundworks and consider all the angles but should a penalty regime even be on the table for discussion right now when so little else is decided or known?

How about this for a radical but fair solution? No penalties and an extremely soft landing for an extended period (I would say 5 years) whilst everything beds in and Joe Public get used to the whole idea. If this exercise is really about changing business behaviour as they claim, they'll want it to work and they'll want the buy in of their target market, won't they?

Anyway, back in the real world, the fact that HMRC are already talking penalties tells us all we need to know about their motivations. So when is it exactly that it's going to be re-named "HM Fines and Penalties (with a bit of revenue collection on the side) Service"?

Thanks (1)
By lionofludesch
25th Mar 2017 16:32

One major barrier to extending the deadline beyond a month is the notion that VAT returns need to be submitted via MTD.

Just click that button on the day after the quarter end ....

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