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As part of its program in Making Tax Digital (MTD), HMRC has published ‘Making Tax Digital: Tax administration’,  this consultation proposes changes to tax administration, i.e. HMRC's powers and penalties, required in Finance Bill 2017 to deliver MTD. 

This article summarises the consultation and lists the questions it asks.

Under MTD, taxpayers will

The End of Year declaration replaces the Self Assessment declaration.

There will be a transitional period where taxpayers will be subject to two compliance regime.

It is proposed that the current self assessment compliance and enquiry regime will be adapted for the new regime.

Question 2.1: Do you agree that compliance legislation should be amended to replicate current enquiry powers into the Self Assessment return to the End of Year declaration?
Question 2.2: Do you agree that current HMRC and customer safeguards should also be maintained? Question 2.3: Are there any other options for preserving HMRC’s current enquiry powers in MTD?

Penalties

HMRC suggests two models.

The Basic model
Each failure, i.e. a late filing or a late payment, attracts penalty points which when accumulated will attract a penalty.

Question 3.1 Do you agree that 12 months is an appropriate length of time to allow customers to become familiar with the new obligations before the new penalty regime comes into effect?

Question 3.2: Do you agree that the period to wipe the slate clean should be 24 months? If not, what other period would be appropriate?

Question 3.3: We invite views on the design principles outlined for the points based penalty. For example, do you consider there are any further elements to build in to this basic model?

Question 3.4: At what stage for each of these different submission frequencies should points generate a penalty?

Question 3.5: We would welcome comments on whether existing penalties are sufficient to support compliance with occasional filing obligations. If not, what more is needed?

Question 3.6: Do you agree that, in principle, a single points total that covers all of the customer’s submission obligations is the right approach?

Question 3.7: Do you agree that the proposal outlined in paragraphs 3.25 to 3.28 is the right way to operate a single points total? If not, what alternative would you suggest that ensures the design of the penalty is kept simple?

Esculator model

Question 3.8: We welcome views on whether the escalator model would be a more effective way of aligning with the five principles described in paragraph 3.2? (applied to encourage compliance, not revenue raising, proportionate, fair, a credible threat, consistent and standardised).

Fixed penalties

Question 3.9: Do you agree that a fixed amount penalty is appropriate?

Question 3.10: Should the amount of fixed penalty reflect the size of a business?

No plans to offer education rather than charging a penalty

Appeal against points

There is no proposal that customers should have the right to appeal against points as they arise.

Question 3.11: Do you agree that points should only become appealable when they have caused a penalty to be charged?

Tax geared penalties

Late payment sanctions

Question 4.1: Do you agree that 14 days is an appropriate length of time to allow customers to either pay in full, or make arrangements to do so before penalty interest is charged?

Question 4.2: Do you think that charging penalty interest is the right sanction for non-compliance with payment obligations?

Question 4.3: Are there other commercial models that might be appropriate for us to consider?

Question 4.4: We invite views on the design principles outlined for penalty interest. For example, do you consider there are any further elements to build into this proposal?

Proposal B: revise and align existing late payment penalty regimes

HMRC is considering two models:

Model 1 is based on the existing Income Tax late payment regime: penalties at 5% paid if tax is paid late: 30 days, 60 days, and 12 months late. For VAT, the period would be shorter: 30 days and 60 days and the penalty 3%.

Model 2 is a tapered system, penalties are first at 4%, then 10% and then 15%, for VAT they would be 3% (30 days late) and then 10% (60 days late).

Question 4.5: Does model 1 or model 2 best meet the government’s objective of providing a fair and proportionate response to late payment of tax?

Question 4.6: Do you agree that the timing of late payment penalties should change to reflect the frequency of payment due dates?

Question 4.7: We invite views on the design principles outlined for late payment sanctions. For example, do you consider there are any further elements to build into these proposals?

Question: 4.8: Which proposal best meets the design principles?

Late payment interest

Question 5.1: Should the current interest rules for Income Tax and Class 4 National Insurance contributions continue to apply in MTD?

Question 5.2: Do you have any initial comments about aligning interest rules across taxes?

Impacts

HMRC says that MTD will allow it to create targeted guidance and tailored prompts for customers. In addition, the government has stated that it is not seeking to increase compliance interventions on the basis of regular updates. So it expect there will be fewer compliance interventions and more digital interactions, for example prompts and nudges, to help customers get things right first time.

Question 6.1: Please provide details of how the proposed administrative changes will affect you, including details of any one-off and ongoing costs or savings.

Questions 6.2: Do these administration proposals have a significant or disproportionate impact on groups with legally protected characteristics, as recognised in the Equalities Act 2010?

The consultation will run for 12 weeks from 15 August 2016 to 7 November 2016.

Summary of consultation questions: MTD Tax administration

HMRC would like to hear from organisations or individuals on the points raised. Responses should be sent by 7 November 2016, by e-mail to This email address is being protected from spambots. You need JavaScript enabled to view it.

Links

Consultation document: Making Tax Digital: Tax adminstration

For our summaries of the other Making Tax Digital documents see: Making Tax Digital: index