The Association of Taxation Technicians (ATT) is urging HMRC to amend proposals for a new penalty regime for late payment of tax in order to avoid unfair outcomes for taxpayers. Unless the plan is amended, it would mean that taxpayers who had agreed with HMRC to pay tax liabilities by instalments could incur substantial penalties even on instalments which had been paid as agreed with HMRC.
The new proposals1 are designed to encourage taxpayers to pay their tax liabilities on time2 or, failing that, to make early contact with HMRC in order to arrange a Time to Pay (TTP) agreement.3 Taxpayers who pay late without having arranged a TTP agreement are exposed to increasing penalties.4
ATT is concerned that the proposals as drafted mean that any breach of the terms of a TTP agreement can result in that TTP agreement being treated as if it had never existed. That could leave the taxpayer exposed to the same level of penalties as if they had made no attempt to pay their liabilities on time or agree a basis of payment with HMRC. ATT has set out its concerns in a response to HMRC.5
Jon Stride, Co-Chair of ATT’s Technical Steering Group, said:
“We can see the sense in incentivising early contact with HMRC whenever a taxpayer has been unable to pay a tax liability by its due date. We can also see the need to prevent abuse of the TTP provisions – for example someone entering a TTP agreement with no intention of sticking to its terms.
“What really concerns us is the idea that a taxpayer who has kept to the terms of a TTP agreement and made all the instalments payments on time up until the point when, for whatever reason, they breach its terms should lose all credit for their actions up to that point and incur the same level of penalties on all the instalment payments that had been made as if there had never been a TTP agreement.
“Unless that part of the proposals is changed, we anticipate that any taxpayer in that position is likely to assert that they had a reasonable excuse for the breach in question. That will take up HMRC and possibly tribunal time and resources and delay resolution of the matter. We think that it would also open up the possibility of the tax tribunal concluding that the factual existence of the TTP agreement prior to its breach meant that the taxpayer had a reasonable excuse for paying the tax liability in accordance with that agreement rather than as a single sum on its due date.6
“Our response to HMRC suggests alternative ways of achieving appropriate and proportionate penalties where a TTP agreement is breached so that the challenges to penalties which we otherwise anticipate can be avoided.”
Notes for editors
1. In advance of the publication of the Finance Bill in the autumn, HMRC published draft versions of forty clauses and draft Schedules in July (see here) and asked for any comments on these by the end of August. The clauses include three which propose new penalty provisions. This press release relates to Schedule 13.
2. Under the proposals, no penalty would be incurred if payment was made within 15 days of the due date - although normal late payment interest would still accrue.
3. A Time to Pay (TTP) agreement involves agreeing an instalment plan with HMRC. Under the proposals:
a. A taxpayer who contacted HMRC within 15 days of the due date and succeeded in agreeing a TTP payment would avoid any liability to late payment penalties so long as the TTP terms were then met;
b. A taxpayer who delayed that initial contact with HMRC until the period between 16 and 30 days after the due date would incur a penalty calculated as a percentage of the amount unpaid at Day 15 but would avoid further penalties.
4. A taxpayer who made no initial contact until after Day 30 (or made no contact at all) would be liable to both:
a. A penalty calculated as a (higher) percentage of the amount unpaid at Day 30, plus
b. A penalty rate of interest on any amounts remaining unpaid after Day 30 (unless a TTP agreement was arranged in respect of such amounts).
5. The ATT’s response to HMRC’ on the draft legislation can be found here
6. The tax tribunal came to that conclusion in relation to comparable provisions in the case of Thomas James  UKFTT 109 (TC) (see paragraph 53 of the decision).