Changes to certain aspects of the penalty regime and the compliance rules are proposed.
This consultation covers the aspects of the penalty regime and the compliance rules that will need to change under the Making Tax Digital (MTD) proposals. This aims to simplify the penalty regime and develop a system that will encourage people to comply with tax regulations. The intention is to align the penalty and interest regimes across all taxes.
HMRC do not intend to extend their current enquiry or information gathering powers. They will however need to be modified to deal with the digital age. One thing HMRC are clear about, however, is that they will not be able to enquire into each quarterly update, it will remain restricted to the year-end update/activity. HMRC will retain their existing powers to make a determination where no information is provided and to correct obvious errors (in the digital tax account rather than the current self-assessment tax return).
A points based penalty regime is being proposed for late submissions which would only charge penalties after a certain number of points are accumulated. Each late submission would attract a penalty. This would penalise repeat failures but not one-off oversights. Whether the system should be flat or escalating (i.e. two points for the second failure, three for the third etc.) is part of the consultation. The intention is that this points system will be applied across all taxes. The current proposals would allow for penalty points to be reset to zero after a sustained period of compliance, currently suggested as 24 months. Should a penalty be triggered, it is intended that it be fixed. Tax geared penalties would only be used in extreme situations.
In respect of late payment penalties, two proposals are put forward. Option one is for penalty interest to be charged after 14 days which would be higher than general bank interest and would not be tax deductible for corporation tax purposes. The second option is a percentage of tax outstanding (as is currently the case) at trigger points of 30 days, six months and 12 months. This would be consistent across income tax, VAT and corporation tax.
HMRC aim to align the rules around interest and are basing this alignment on the current income tax rules.
The closing date for responses to this consultation is 7 November 2016.
Please contact us using the details below if you would like any further information on this consultation or our response.
Tel: +44 20 73115709
Tel: +44 20 73114330