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Tax Day: The MTD penalty regime

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The first day of our AccountingWEB Live Expo saw Rebecca Benneyworth tackle the Tax Day documents.

1st Dec 2021
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The AccountingWEB Live Expo kicked off this morning with Rebecca Benneyworth’s hot take on yesterday’s Tax Administration (TAM) Day announcements.

Benneyworth was joined by Paul Aplin and Kate Upcraft to unpick the blizzard of consultations at the Coventry Building Society Arena, where she insisted that HMRC investing in proper tech is the only way the profession is going to weather the storm of MTD ITSA.

Penalty regime

Benneyworth said that the new penalty regime for late filing of returns and late payment of tax should be high on everybody’s radar. 

Under MTD quarterly reporting you have to complete 16 returns, each of which generates a potential penalty if you miss it. Each obligation has a separate bucket of potential points for generating penalties.

Therefore, Aplin explained, the opportunity to make a mistake and therefore incur a penalty increases massively once MTD for ITSA comes in.

“The penalty system will have us tearing our hair out,” he said. “But it doesn’t have to be a disaster - there is still time.”

Aplin explained that the profession needs to make a bid for using the technology available to help people avoid clocking up penalty points.

“We could change the whole way people see the system,” he said. “If that opportunity is not grasped, people will just see a tsunami of new penalties.”

The tech required to remind clients of payments due is already out there and deployed in the financial sector. “If this is all about making the experience of the taxpayer better, we have to use tech to do that,” said Benneyworth.

“By the time we get MTD for ITSA, we need an automatic system through tech to tell people when they’re going to get a penalty. We have plenty of time to do it.”

She added that if HMRC had that approach and people were alerted to what payments they need to make ahead of time, there could be a whole change in attitude to the tax system as a whole.

Devil's in the detail

If you look at the consultation documents, Aplin said, you will find that certain details have changed such as dividend rates. These are going to create knock on effects to trust rates and director’s loan rates.

HMRC also wants to use a discovery assessment for the high income child benefit charge, which will create both prospective and retrospective changes.

This will also be aimed at gift aid over claims and errors on pension taxation claims: “HMRC will have a new tool in its arsenal to pick up common mistakes,” explained Aplin.

He advised that if you don’t routinely ask your clients about these charges you should make plans to, as this assessment will change things. Ensuring your clients know the annual limit to things such as pension funds will help to avoid mistakes on claims.

"Over the course of the pandemic, you may have inevitably found yourself supporting clients who’ve had a tough time," Bennyworth said. If some losses date back to when they were in a better financial position, the discovery assessment might mean that the client owes back some money.

“I don’t know why we need retrospective tax legislation - it’s an absolute disgrace,” she said.

Minimum wage

While the minimum wage hikes are not as complex as last year with the age change, Upcraft commented, there is reduced headroom for salary sacrifice. She explained that anything your clients are doing impacts their wage, not just what goes through payroll.

For example, if you have a client in the hospitality sector who stays at the bar for a drink after their shift, their employer might just deduct the costs from their wages. Even though your client might agree to this, it’s actually in breach of employment law.

It’s not just about hourly rate, Upcraft continued - it’s about expenses and reimbursements also.

As practitioners, Benneyworth advised thoroughly checking letters of engagement to scope out the details of a client’s wage.

“When you’re doing payroll, you might or might not have enough to identify if there are minimum wage breaches,” she explained. “What’s in the letter of engagement? What does your client think is in the letter?”

Replies (23)

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By Paul Crowley
01st Dec 2021 21:47

"Under MTD quarterly reporting you have to complete 16 returns, each of which generates a potential penalty if you miss it. Each obligation has a separate bucket of potential points for generating penalties."
This is exactly the purpose of MTD
16 times 200? I thought it was possibly 18 per person, 36 per couple
If that correct, just 16 then £3,200 when it was only £100 in the prior year
Taxation by penalty is the primary purpose of MTD ITSA
MTD CT can wait cos there there just ain't enough penalty opportunities, and chances are that people who run companies will comply and be on time

And remember this cr4p applies to people who have no tax liability

Thanks (8)
Tornado
By Tornado
02nd Dec 2021 18:12

It will be interesting to know exactly how HMRC intend to collect the millions of penalties that are clearly going to arise.

Thanks (4)
Replying to Tornado:
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By Hugo Fair
02nd Dec 2021 22:32

That's where the second objective kicks in (or should I say the original objective).

HMRC have a deeply embedded mistrust, bordering on the psychopathic, of the self-employed. It's origins are in the Revenue's DNA - going all the way back to when PLU (people like us) operated through professional partnerships, and only the middle-classes got their fingers dirty with the filthy business of incorporation ... and the working classes ducked 'n' dived in a thieves' den of self-employment.

In this context MTD for ITSA can be seen as the natural bedfellow of IR35 ... a set of tools with which to drive the self-employed into the more controllable realms of PAYE and/or CT.
In reality many will indeed 'see the light' - but not by incorporating or seeking employment, but by dropping off the radar entirely.

The original plan/hope was to drive people away from self-employment (with Penalties being a nice-to-have bonus along the way) ... but without caring too much about non-collection so long as the primary objective was met.

In the meantime the chaos and casualties will escalate rapidly - but individual careers/bonuses are too valuable to the decision-makers to allow recognition of the sunk cost fallacy that will overcome MTD in due course.

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Replying to Hugo Fair:
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By Anthony G Thorne
06th Dec 2021 09:43

A very fair summing up

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Replying to Anthony G Thorne:
By ireallyshouldknowthisbut
06th Dec 2021 16:29

Anthony G Thorne wrote:

A very fair summing up

Yup I have seen it so many times with our clients for whom we do back taxes property tax

HMRC have stopped going after them, but when they were active nearly everyone who came to be had been caught, and knew they had to pay, but for one reason or another (laziness, fear etc) had built it up to be too big a deal and had bottled filing once they knew they were late and had opted for "keeping your head down" which is generally a good plan. I am sure others have excelled with his strategy and remain uncaught. With MTD the blizzard of complexity is going to make many close their eyes and look away.

Thanks (3)
Replying to ireallyshouldknowthisbut:
Tornado
By Tornado
06th Dec 2021 18:27

"With MTD the blizzard of complexity is going to make many close their eyes and look away."

This seems like to only outcome to me. Why would people try to comply with something they do not understand or cannot afford but would be happy to comply if the rules were easier to comply with.

The Courts are already overloaded, the appeals system is way behind, HMRC do not have the resources to deal with a massive rise in the non-payment of taxes and penalties. There will inevitably be a meltdown of the system and the instance of Fraud will be higher than ever before as some people take advantage of the confusion.

All because some idiot thought it was a good idea to ignore people and worship the god of IT instead.

Thanks (4)
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By johnjenkins
06th Dec 2021 10:09

Bankruptcies and liquidations galore. Black economy rising. Cash transactions abound.
We are not a people of compliance. We are a people of common sense and when the two clash compliance will go. We came out of the EU, common sense. Look what has happened with IR35. HGV drivers have gone elsewhere and doing other things. MTD has to be put back cos the IT people have gone elsewhere etc. etc. I've just heard that HMRC are now putting people on the post as there's a backlog. I wonder if they have started to answer the phones yet.

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Replying to johnjenkins:
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By jamiea4f
06th Dec 2021 10:54

They do but anything other than a simple query takes forever to get an answer to. HMRC is not fit for purpose these days and is just a cash cow for the government to [***] on contracts for their mates.

Thanks (4)
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By Justin Bryant
06th Dec 2021 10:18

Re Wilkes case (retrospective DA legislation), surprised to see this from RM:

https://www.taxjournal.com/articles/collecting-the-hicbc-reversing-wilkes

Compare & contrast with RB above and AH here: https://www.taxation.co.uk/articles/this-week's-opinion-18-november-2021

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By GDavidson
06th Dec 2021 10:28

Sorry but could someone explain the "16 returns"?

Thanks (3)
Replying to GDavidson:
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By Paul Crowley
06th Dec 2021 11:44

I thougt it was 5 returns per income type
Self employed
Rent income
Furnished holiday letting
And some sort of finalisation thing ( you know sort of checking what was a tax return )

Per person
Will tax payyers now get 16+ tax calculations per year, spread over 19 months so that the years will get confused and nobody without a lot of extra time can figure out the true one liability?

No idea what happens if trader is also part of a partnership

Partnership as an addition, but no idea on these rules yet
As per normal I assume penalties per partner per return
And maybe doubled as both partner and partnership at fault?

Thanks (2)
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By BryanS1958
06th Dec 2021 10:55

It doesn't have to be a disaster - there is still time for UK businesses and landlords to say NO to MTD ITSA.

An insane project in my opinion, the only winner will be HMRC collecting penalties.

Thanks (2)
Replying to BryanS1958:
Tornado
By Tornado
06th Dec 2021 12:21

It will be a disaster, but only for HMRC.

Trying to get MTD to work properly is not our responsibility and the project becomes even more unworkable with this ridiculous penalty scheme that is akin to fining people for not having a shower every day or not wearing clean underpants every day. These sorts of threats do not achieve compliance, just rebellion.

Compliance is better achieved by creating rules that are relatively easy to comply with and provide clear benefits for compliance.

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Replying to Tornado:
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By johnjenkins
06th Dec 2021 12:38

If compliance had a common sense approach tax payers might even go along with it.

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By Mr J Andrews
06th Dec 2021 11:15

''.......HMRC investing in proper tech is the only way the profession is going to weather the storm of MTD ITSA......'' . Any decade now the Revenue may comply with email.

Another Govt., another Chancellor , another HMRC honcho collecting his bong for long service might have seen some positive action over the flourishing black economy prevailing in the U.K. instead of this imminent attack on compliant 'customers'.

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By North East Accountant
06th Dec 2021 13:05

The fun just never stops.....

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Replying to North East Accountant:
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By johnjenkins
06th Dec 2021 13:32

What a year 2024 is looking like being, unless, of course the Xi Jinputin variant doesn't get us first.

Thanks (1)
Replying to johnjenkins:
Tornado
By Tornado
07th Dec 2021 13:15

johnjenkins wrote:

What a year 2024 is looking like being, unless, of course the Xi Jinputin variant doesn't get us first.

Is that a virus specifically targetted at the HMRC MTD software?

Perhaps Xero and Sage will be sold to the Chinese, or anyone else really, for zillions of pound which will spread the data around a bit more generously.

Thanks (0)
Replying to Tornado:
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By johnjenkins
07th Dec 2021 13:35

"Is that a virus specifically targeted at the HMRC MTD software?"
Now there's a thought. Where are those scammers when you need them?

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By justsotax
07th Dec 2021 12:45

The less wiggle room the Revenue give taxpayers, the less wiggle room I am inclined to give them.

Personally I favour swamping them with complaints and paper, to breaking point as required, failure to comply with their own timescales should be met with complaints every. single. time. For every client where undue stress has been put on them through the fault of the Revenue compensation and a redress of agent fees should be raised. Where they fail to reply to enquiry letters closure notices should be requested.

Its the double standards that I hate......

Thanks (1)
Replying to justsotax:
Tornado
By Tornado
07th Dec 2021 13:09

I have tried much of what you describe but this does not work very well as they simply do not respond. I get left with a number of unanswered letters or appeals that sit gathering dust for many months or even years.

I entirely agree that the Double Standards are unacceptable but it is difficult to find anyone in HMRC that is willing to take responsibility for anything. The organisation is so fragmented, that I am surprised that anything gets done at all.

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Replying to Tornado:
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By justsotax
07th Dec 2021 14:46

completely....but just had a case where we appealed a SEISS figure used in the 2021 Return, that was in August, they have advised that they will respond (if we are lucky i would say) by late February.....I wonder what would happen if we appealed 6 months after they issued their calculation?!

Its getting ridiculous and unacceptable!

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By tedbuck
09th Dec 2021 16:58

That's where we are at.

Taxation by penalties and the little people will suffer most so who will they vote for?

Who will Unite support? HMRC staff - aah! now it becomes clearer it's a ploy to get a different brand of Government that will tax the rich.

This means that everybody will be affected by this nonsense.

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