MTD: Late payment sanctions reviewed
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.
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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