HMRC's consultation, ‘Making Tax Digital sanctions for late submission and late payment' closed on 11 June 2017. Responses are anticipated shortly.
The condoc follows a consultation last year and proposes a new penalty and interest framework to deal with taxpayers' new multiple reporting obligations under its Making Tax Digital (MTD) proposals.
All taxpayers who are subject to MTD will have to file at least four extra returns per year. The current late filing penalty regime deals with annual penalties e.g. under Self Assessment, quarterly penalties for VAT and monthly penalties for pay-as-you-earn (PAYE) Real-time Information (RTI) and Construction Industry Schemes (CIS).
HMRC consulted on various complex penalty models in 2016 and this latest consultation considers three options:
- A points-based system. One point per late filing and when enough points are scored a penalty will follow. After a period of timely submission or a penalty, the points re-set to zero.
- A regular review of compliance. HMRC review a taxpayer’s filings over a set period and penalties are based on the number of failures.
- Suspended penalties. A penalty would be issued in respect of a late submission and this would be suspended unless the following submission was made late.
Late payment penalty interest
Late payment penalty interest would replace the current systems of late payment penalties and surcharges. This would be charged according to the number of days late at a fixed percentage rate.
Safeguards
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. There will be a right of appeal against all penalties and the recording of failures that do not, immediately, give rise to a penalty e.g. failures that cause the issue of points or that are taken into consideration at the time of the review of compliance.
The penalty options
1. A points-based system
- A point given for each late submission.
- When the points reach a certain threshold a penalty would be charged.
- The points are reset after a period of good compliance
A period of good compliance required to reset the points total to zero would be:
| Submission frequency | Good compliance period |
| Annual | 2 return deadlines |
| Quarterly/MTD for business | 4 submissions |
| Monthly | 6 submissions |
2, Periodic, automated review, tax by tax, considering duration of failures
- HMRC makes an automated review of each taxpayer on a regular basis.
- Notification given for each late submission.
- No penalty for first offence.
- Prompt after each failure for the taxpayer to provide a reasonable excuse for missing an obligation (if such an excuse exists).
- Fixed penalty per failure.
The review could be made:
- At the filing deadine of the end-of-year statement.
- Of the end-of-year statement to include the end-of-year statement.
Suspension
- When the first failure happens the taxpayer is notified, no penalty is charged on condition that the outstanding submission will be made within a specified time. If the condition is not met the penalty would be charged.
- If late a second time, they could again be notified of their failure and given the opportunity to escape being charged a penalty in return for providing the outstanding submission within a specified time.
- The number of occasions on which a penalty would be suspended would need to be limited. HMRC proposes a limit of two times.
- Good compliance would be rewarded. After a period of sustained good compliance, penalties again should be suspended for initial failures before suspension is no longer available.
Late payment penalty interest
- Originally proposed to charge within 14 days, respondents did not agree that this gave sufficient time to pay in full or enter into Time-To-Pay (TTP) arrangements.
- HMRC says that it intends to consult later in 2017 on proposals to align late payment interest across taxes. The assumption is that late payment interest will still be payable from the day after the due date for the tax and will continue to run until the tax is paid in full. Penalty interest will be charged in addition to this if the tax is still outstanding at a certain point after the due date and the customer has not entered into, and adhered to, time to pay arrangements.
- Next steps: HMRC will consult later in 2017 on draft legislation for penalty interest.
- HMRC is not asking any specific questions about penalty interest at this stage, but any further views on the proposals are welcome.
Summary of Consultation Questions
Question 2.1 Which of the three penalty models proposed (A - Points-based, B - Regular review of compliance, or C – Suspension of penalties) do you consider to be the best and why?
Question 2.2 What are your views on the relative importance of the competing demands of fairness, simplicity and effectiveness?
Question 2.3 To what extent does each of the three penalty models strike an appropriate balance between fairness, simplicity and effectiveness?
Question 3.1 Do you agree with these proposals for the duration of the required good compliance periods?
Question 3.2 Could any changes be made to the points-based penalty model to make it fairer, simpler or more effective?
Question 4.1 What are your views on the timing of the review?
Question 4.2 Which of the three options mentioned in paragraphs 4.5 to 4.7 above for customers within Making Tax Digital for Business do you think is the most appropriate?
Question 4.3 Do you agree this would be a proportionate response to occasional lateness that lasted just a short time?
Question 4.4 Could any changes be made to the regular review of the compliance model to make it fairer, simpler or more effective?
Question 5.1 Do you agree that improved compliance should be recognised? Is there a better alternative for recognising it?
Question 5.2 Could any changes be made to the suspension model to make it fairer, simpler or more effective?
Responses this consultation should be sent by 11 June 2017, by e-mail to
or by post to:
HM Revenue and Customs Making Tax Digital Tax Administration Room 1C/06 100 Parliament Street London SW1A 2BQ
