HMRC introduces Penalty Charges for late tax returns

14th December, 2017

The meter will soon be running on your tax returns. Today HMRC has revealed details of a penalties system for late submissions and payments under Making Tax Digital, (MTD) confirming it plans to pursue a points-based model.

From April 2019 all compulsorily VAT registered businesses must submit their VAT returns through software under the HMRC’s MTD plans. Earlier this year HMRC ran a consultation on three potential penalties models: points-based, regular review of compliance and suspension of penalties. In its report HMRC stated that a large majority of respondents favoured the points-based model due to its comparative simplicity.

Under the model, customers would receive a point every time they fail to submit on time. A penalty will be charged at a certain threshold, which will be dependent on the frequency of their submission obligations. After the threshold has been reached, a penalty will be charged for every subsequent submission failure.

The penalty thresholds put forward are: 2 points for annual submissions, 4 points for quarterly submissions and 5 points for monthly submissions.

One amendment to the model following the consultation is that penalty points will have a shelf-life and would expire after a period of good compliance.

Periods of good compliance were outlined by HMRC as: 2 submissions for annual submissions, 4 for quarterly, and 6 for monthly.

The system will work with a separate points total per tax, rather than one points total relating to all obligations. HMRC points out that this reflects business structure, where different departments may be responsible for different taxes.

To incentivise individuals for good behaviour, HMRC have said they will make penalty points and actual penalties appealable, and give taxpayers the option to claim a reasonable excuse for failing to meet a filing obligation.

Draft legislation is expected in summer 2018, and it is anticipated that the model will first be implemented for VAT in 2020, to give taxpayers a year to become familiar with the system following the first MTD intake in April 2019.

Martin Atkins Partner said:

“Despite the analogies with traffic PCN’s, this announcement is actually to be welcomed. The original proposals with their lack of a shelf-life for points would have been ineffective as well as unfair because there would have been no incentive to improve if points stuck for too long regardless of ongoing compliance.”

“The reality is that while the new MTD system represents change, which can cause concern, it will actually prove to be simpler for the majority in the long run. We are currently working with our clients to guide them through the process and help them plan properly. Whether we like it or not the future is a digital one, but with good planning and advice, penalties can of course be avoided.”

The meter will soon be running on your tax returns. Today HMRC has revealed details of a penalties system for late submissions and payments under Making Tax Digital, (MTD) confirming it plans to pursue a points-based model.

From April 2019 all compulsorily VAT registered businesses must submit their VAT returns through software under the HMRC’s MTD plans. Earlier this year HMRC ran a consultation on three potential penalties models: points-based, regular review of compliance and suspension of penalties. In its report HMRC stated that a large majority of respondents favoured the points-based model due to its comparative simplicity.

Under the model, customers would receive a point every time they fail to submit on time. A penalty will be charged at a certain threshold, which will be dependent on the frequency of their submission obligations. After the threshold has been reached, a penalty will be charged for every subsequent submission failure.

The penalty thresholds put forward are: 2 points for annual submissions, 4 points for quarterly submissions and 5 points for monthly submissions.

One amendment to the model following the consultation is that penalty points will have a shelf-life and would expire after a period of good compliance.

Periods of good compliance were outlined by HMRC as: 2 submissions for annual submissions, 4 for quarterly, and 6 for monthly.

The system will work with a separate points total per tax, rather than one points total relating to all obligations. HMRC points out that this reflects business structure, where different departments may be responsible for different taxes.

To incentivise individuals for good behaviour, HMRC have said they will make penalty points and actual penalties appealable, and give taxpayers the option to claim a reasonable excuse for failing to meet a filing obligation.

Draft legislation is expected in summer 2018, and it is anticipated that the model will first be implemented for VAT in 2020, to give taxpayers a year to become familiar with the system following the first MTD intake in April 2019.

Martin Atkins Tax Accounting Partner said:

“Despite the analogies with traffic PCN’s, this announcement is actually to be welcomed. The original proposals with their lack of a shelf-life for points would have been ineffective as well as unfair because there would have been no incentive to improve if points stuck for too long regardless of ongoing compliance.”

“The reality is that while the new MTD system represents change, which can cause concern, it will actually prove to be simpler for the majority in the long run. We are currently working with our clients to guide them through the process and help them plan properly. Whether we like it or not the future is a digital one, but with good planning and advice, penalties can of course be avoided.”

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