The Association of Taxation Technicians (ATT) is urging HMRC to consider changes to its proposals for the sanctions which will apply if a taxpayer is late in making a quarterly submission or payment under the Making Tax Digital (MTD) system which is due to be rolled out from 6 April 2018.
In its response to HMRC’s consultation1, the ATT favours HMRC’s proposal to allow taxpayers a limited number of occasions to avoid a penalty for a late quarterly MTD submission by making the submission within a short extension period.2 The ATT goes on to suggest the introduction of a limited shelf life for the totting up of the occasions when an extension is granted3 and consideration of discounted penalties.4
On HMRC’s plans to charge a penalty rate of interest simultaneously with the normal rate for late paid tax on the ground that the two interest charges would serve separate functions, the ATT says that from a taxpayer’s perspective that would be a distinction without a difference; both charges would arise because the taxpayer was late in paying tax so for simplicity there should be a single interest charge.
Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:
“We very much welcome HMRC’s attempts to design a new penalty system for late submissions, returns and payments which will be fair, simple and effective. We see fairness and simplicity as key in the creation of a structure which encourages good compliance and works effectively.
“Any new penalty system has to have a soft landing to avoid it being seen by taxpayers as a revenue raiser. We think that the initial penalty-free period should be longer than 12-months so that taxpayers have experience of a full MTD cycle.5
“Of HMRC’s three suggested models for late submission penalties, we prefer the one which provides a brief extension period. We see it as the simplest for taxpayers to understand, the fairest in that it quickly alerts taxpayers to what they need to do to avoid a penalty and the most effective in encouraging a return to compliance following a taxpayer’s submission failure.
“On late payment interest, we see no practical merit in HMRC simultaneously charging a taxpayer two different rates of interest on the same overdue tax. Simplicity and effectiveness both point to the benefit of a single penalty rate. In terms of timing, we think that the penalty rate should apply once the tax is overdue by 30 days, rather than the 14 days proposed by HMRC.
“As always, we have emphasised our keenness to be involved in any further HMRC consultation on these matters.”
In its response, the ATT also offers suggestions as to how HMRC’s ‘Points –based model’ might be made fairer, although it emphasises that this would add complexity.6
Notes for editors
2. This is Model C in HMRC’s consultation. HMRC refer to this as ‘Suspension of penalties’.
3. HMRC’s consultation refers in section 5.5 to the recognition within Model C of ‘a period of sustained good compliance’. ATT recommends (section 5.3.2 of response) that instances when an extension had been granted should be removed from the taxpayer’s record after an appropriate period of time (a standard one year is suggested).
4. Where a penalty becomes payable under Model C (because a taxpayer has already had the benefit of two extensions), ATT recommends (section 5.4.2 of response) that rather than being denied another extension opportunity the taxpayer should (within a limited time period) have the opportunity to make both the relevant submission and payment of a reduced fixed rate penalty. In addition to encouraging a return to early compliance, this would also align with the objective of cost-effective collection of penalties (principle 4 in section 2.4 of the consultation).
5. Under MTD, a business will have to make four quarterly submissions followed by an ‘end of period statement’ which brings together the four quarters and makes any necessary accounting adjustments (e.g. capital allowances). The submission deadline for the end of period statement is the earlier of:
- 10 months after the end of the relevant period or
- 31 January following the end of the tax year in which the relevant period ends.
Typically, those deadlines mean that the full reporting cycle spans 18 months. ATT recommends that the initial penalty-free period should extend for the full first reporting cycle.
6. This is Model A in HMRC’s consultation. It involves the accumulation of penalty points until a penalty becomes payable.