HMRC penalty reforms: Update

Planned reforms to HMRC’s penalty regimes for late submission and payment of tax due (see our September 2018 Taxing Times article here) are to be further delayed while HMRC considers how best to communicate the changes.  Information which followed the October Budget suggests that there are unlikely to be any changes before April 2021.

The new penalty regimes for late payments of tax and late submissions of tax returns were originally expected to be introduced alongside Making Tax Digital for income tax from its original start date of April 2018 and would have affected a very large number of taxpayers.

Deferral of Making Tax Digital for income tax meant there was more time to refine the new penalty regime, which many had criticised.  It was then going to kick in from April 2020.  However, the Budget “Overview of Tax Legislation and Rates” (OOTLAR) document says that it will not be implemented even within the new timescale.  The document goes on to say that “The government remains committed to the reform and intends to legislate in a future Finance Bill, to allow for more time to consider further the communications needed for successful implementation. The government will provide notice before these measures are implemented”.

HMRC has indicated that it wants to introduce a two-tier penalty system which would kick in 15 days after a late payment.  Penalties will be calculated on debts remaining due after 15 days from the payment due date although on a mitigated basis where payment is made or a Time to Pay arrangement (TTP) has been set up until 30 days after the due date.  Where a successful TTP agreement is made, the government will take the date of contact with HMRC as the effective date for the purpose of late payment penalties.  If a payment or TTP is made or treated as made within 15 days of the due date no penalty will be charged; between 16 and 30 days half a penalty will be charged; and after 30 days a full penalty will be charged plus a further penalty which will then accrue daily until payment is made or a TTP treated as made.

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Feb 18

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