Measures for new penalties for late payment of Corporation Tax, Income Tax, Capital Gains Tax, and VAT as well as new measures to change VAT repayment interest rules so that they more closely align to the rules for Income Tax Self-Assessment and Corporation Tax which have been dropped from Finance Bill 2019 will be included in a future Finance Bill.

Normal VAT penalty rules, will to MVD apply until at least 2021.

See Penalties (VAT) subscriber guide

Interest harmonisation: VAT

Alongside the original draft legislation, HMRC published a policy paper, ‘Interest harmonisation and sanctions for late payment’ and a consultation response summary in respect of the proposed changes.

It is not expected that the changes will commence any earlier than April 2021.

  • The repayment interest start date will be the date on which the VAT return for the period was due or the date submitted if late.
  • The period will cease when the payment is made.
  • Interest will not accrue for any period:
    • In which HMRC raise or await a response to any reasonable inquiry related to the relevant VAT return. Once a complete answer is received the interest will accrue from that date.
    • Where HMRC needs to correct VAT errors or omissions. Once the correction is made, the interest will accrue.
  • Interest will also not accrue where security has been requested and not provided.

This will replace the Repayment supplement regime.

Late payment penalties: Corporation Tax, Income Tax, Capital Gains Tax, and VAT

The proposed measures will replace the existing schedule 55 FA 2009 Late Payment penalty rules

The legislation will be included in a future Finance Bill and commence from an unspecified date, expected to be no earlier than 2021.

  • No penalty will be payable if:
    • The tax is paid in full before the end of 15 days from the due date, or
    • A time to pay agreement is made with HMRC and the proposal was made within the first 15 days.
  • The penalty will be half of the applicable percentage x the tax outstanding if:
    • The tax is paid in full between 16 and 30 days from the due date, or
    • A time to pay agreement is made with HMRC and the proposal was made within the 16 – 30 day period.
  • If the time to pay agreements are broken, the full penalties will fall due.
  • The other half of the applicable percentage x the tax outstanding will become payable after 30 days where there is no time to pay agreement.
  • After 30 days, the penalty will continue to accrue at the applicable percentage. Again relief will be available where there is a time to pay agreement in place.

Provisions are in place to allow for a Reasonable excuse, for the usual Appeals procedure, and to ensure there is no ‘double jeopardy’ where the taxpayer has been subject to a conviction for an offence.

The proposed legislation follows HMRC’s December 2017 consultation, ‘Making Tax Digital: interest harmonisation and sanctions for late payment’ and was released on the same day as the consultation outcome, ‘Making Tax Digital: interest harmonisation and sanctions for late payment – summary of responses’.

The respondents were broadly in favour of the suggested changes, but as a result of comments made HMRC updated their proposals to ensure:

  • VAT repayment interest will accrue from the date that any other outstanding returns are submitted, subject to reasonable enquiry. Initially, it was suggested that no interest would be paid where there were other outstanding returns.
  • The date of contact with HMRC will be taken as the effective date for the purposes of when a time to pay agreement was put in place. Initially, it was suggested that penalties would only be reduced where the agreement was in place within the day limits specified, but this did not acknowledge the length of time it takes to finalise these agreements with HMRC.

The policy documents and draft legislation can be read in full here. The consultation response is here.

Links

Making Tax Digital: index

VAT Reclaims and unjust enrichment

Penalties (VAT)

Penalties: Late Payment

MTD: late payment penalties further consultation


 

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