Interest and late payment penalties for MTD – ICAEW responds to the consultation

ICAEW has commented on the latest consultation on penalties and interest for Making Tax Digital (MTD). Our comments are in ICAEW Rep 29/18 submitted on 1 March 2018. 

This consultation, published on 1 December 2017, is the third on this aspect of MTD, the previous ones being Making Tax Digital: Tax Administration published in August 2016 and Making Tax Digital: sanctions for late submission and late payment published in March 2017. 

The government is proposing to align the calculation of interest for VAT and corporation tax with the interest rules for income tax. ICAEW is largely supportive of this change but we raised a number of points about how HMRC systems sometimes allocate payments to the detriment of taxpayers. 

The proposals for late payment penalties are more controversial and we do not support them. The suggestion is that late payment penalties would have two elements: an element charged at a percentage of the tax due (similar to the current 5% charge for income tax unpaid 30 days after the due date) and an element charged in an interest-type calculation. This hybrid model is unnecessarily complex and is unlikely to be an effective deterrent. ICAEW recommends that late payment penalties be based on an interest-type calculation only. 

It is also proposed that late payment penalties would not be incurred where payment is made, or a formal time to pay arrangement is put in place, within 15 days after the due date. The penalties would be reduced by 50% if these actions are taken from day 16 to 30. ICAEW considers that 15 days is far too short a period in which to agree time to pay and is recommending that no late payment penalties should be charged where payment is made or time to pay is agreed within 30 days of the due date.