Former Tax & IT Partner
Columnist
Share this content

Proposed points and penalty system is potentially problematic

Paul Aplin warns of a potential snowstorm of points and penalties under MTD, but suggests a digital solution to help taxpayers, tax agents and HMRC cope with the new system.

19th Mar 2021
Former Tax & IT Partner
Columnist
Share this content
Storm brewing in Westminster Parliament and Big Ben with storm clouds after sunset, London, United Kingdom
istock_mammuth

I was pleased to see the announcement on Budget Day of the long-awaited, points-based system for late filing penalties, but I thought the devil would be in the detail and so it has proven to be. 

Where are we now?

The current system for income tax self-assessment (ITSA) late filing penalties can impact disproportionately on some taxpayers.

Until 2011 the system capped the initial late filing penalty at the lower of the time-related penalty and the tax due: no tax, no penalty. I accept that some people wasted HMRC’s time and paid no penalty at all as a consequence, but when the system changed (removing the cap and adding daily penalties) I saw clients accrue significant penalties even when they were owed a tax refund. 

Beyond a certain level, the accumulating daily penalties sometimes make people less, not more, inclined to face the problem. In fairness, every time I appealed such a case, HMRC withdrew the penalty, but it would be better to have a more proportionate system in the first place.  

Register for free to continue reading

It’s 100% free and provides unlimited access to the latest accounting news, advice and insight every day. As well as access to this exclusive article, you can:

Tick iconView all AccountingWEB content
Tick iconComment on articles
Tick iconWatch our digital shows and more

Access content now

Already have an account?

Replies (9)

Please login or register to join the discussion.

avatar
By More unearned luck
19th Mar 2021 13:19

What is to happen in the case of late filed partnership 'returns'? Are we to see the end of innocent taxpayers being penalised for the defaults of others and the further injustice of being denied the right to appeal?

Thanks (0)
ghm
By TaxTeddy
22nd Mar 2021 09:18

Points make.....prizes? Well, no - not really

Generally I welcome the level of incompetence that permeates every level of the modern world and makes life such a fascinating experience. Whether it is the ineptitude of governments in managing the spread of a virus, the inability of the European Union to agree on, well, almost anything or the failure of a Hermes courier to deliver a parcel when they say they will.

For the most part I view all this with wry amusement but there are limits.

I read Paul's article (above) and the gap between HMRC's 'vision' and the reality of implementation has the potential to be the biggest howler so far. I expect -

- an avalanche of paper statements - think PAYE code notices x 10
- a mismatch of MTD data in the same way RTI for PAYE never keeps up with events

Potentially this is a huge amount of work as clients won't understand it. But my reaction based on years of dealing with varied HMRC systems is not to try and manage it at all because the cost to the client is disproportionate - or I don't charge. Either way, engaging with this system will be a problem.

With implementation starting in April next year we have time to think about this but as a sole practitioner I genuinely can't think of a cost-effective way to engage.

Thanks (8)
avatar
By fbdconsultancy
22nd Mar 2021 10:14

Well said, Paul!

Thanks (0)
avatar
By fbdconsultancy
22nd Mar 2021 10:14

Well said, Paul!

Thanks (0)
avatar
By fbdconsultancy
22nd Mar 2021 10:14

Well said, Paul!

Thanks (0)
avatar
By Ian McTernan CTA
22nd Mar 2021 10:18

Here's where the problem lies:

My understanding is that HMRC intends to notify taxpayers via the digital Personal Tax Account (PTA) and Business Tax Account (BTA). However, at present tax agents cannot access information provided to the taxpayer in the PTA or BTA.

I'd say at least 75% of my clients either don't have one, or have one and never look at it (why would they?).
HMRC are trying to drive a wedge between clients and their agents as every time they bring in a new system they exclude agents (SEISS is an example).
A complex penalty system isn't what's needed: what's needed is HMRC seeing sense.

Thanks (8)
By Charlie Carne
22nd Mar 2021 10:29

I completely agree with Paul. I have long argued that there are many positives to MTD, alongside the additional bureaucratic burdens it imposes. Paul rightly highlights one of the key problems that has long existed between taxpayers, their agents and HMRC: the lack of transparency of information provided. If agents can receive ALL of the same information that is presented to their clients, we will be in a much better position to assist them and thus aid HMRC in collecting the correct tax in a timely manner.

MTD has the power to not only provide all of this data to agents, but to do so via API's, which means that we can use commercial software to present this data to us more meaningfully than HMRC can present it, and have it linked to our practice management tools to aid in managing deadlines. For so long as HMRC insist that only taxpayers can see certain information and refuse to treat agents as trusted intermediaries who diligent taxpayers use to ensure their own compliance, problems will continue and the penalty regime will never achieve its intended benefit of timely compliance.

Thanks (1)
By Nebs
22nd Mar 2021 10:31

In regard to the "two way street", can I suggest the following:
2 points - Failing to answer the telephone in under 90 seconds
4 points - Incorrect coding notice or SA calculation "correction"
6 points - Failing to reply to a letter within 14 days.
20 points leads to HMRC paying a £200 fine to the taxpayer.

Thanks (18)
Tornado
By Tornado
22nd Mar 2021 15:01

If this is the way it will be for taxpayers, then a similar system must apply to HMRC who, in general are inept and downright incompetent at many levels of service, and cost me and my clients a great deal of money because of this.

I can, therefore, go along with this type of system as long as a similar system is in place to compensate us and our clients for HMRC shortcomings. That seems to be very fair to me.

Thanks (1)