MTD: government response on tax administration, powers and penalties

On 31 January 2017, HMRC published the outcome of the consultation on Making Tax Digital: Tax Administration. This includes a summary of the consultation responses together with the government’s comments and conclusions, and sets out next steps.

This was one of six 2016 consultations on the Making Tax Digital (MTD) project. The Tax Faculty has posted news items on each of the six consultation outcomes.

The main points from the MTD administration consultation outcome are:

Compliance powers

The responses were broadly supportive of the proposal to replicate existing powers and safeguards and the government intends to proceed on this basis.

Legislation to introduce the necessary changes will be included in Finance Bill 2017 but draft legislation has not been published. This is presumably because the changes are intended to simply adapt the current law; but the legislation concerned is complex and will need to be scrutinised carefully to ensure there are no unintended effects.

The ICAEW response (ICAEW REP 175/16) suggested clarification of notification deadlines and the taxpayer’s right to amend returns under MTD. These issues are addressed in outline in the consultation response, Bringing business tax into the digital age, which states that

‘On identifying transaction recording errors or omissions, business will enter them in their record-keeping software. When the business submits its next update, the software will automatically recognise any changes to previous updates. It will allocate the amendments to the correct update periods and seamlessly submit the revised information to HMRC alongside the current update.’

We anticipate further consultation on the taxpayer’s right to amend.

Late submission penalties

The comments made by respondents can be summarised as follows:

  • The transitional arrangements where late submission penalties are not charged should be longer than 12 months.
  • The proposed points-based model received mixed responses with concerns over complexity, how quickly points could accrue and the length of the period before points would be cleared.
  • There was strong opposition to the proposal that points would be appealable only when they cause a penalty to be charged.

The government acknowledges that further work needs to be done on the proposed model for late submission penalties and intends to publish a further consultation document in Spring 2017 before introducing any legislation.

The government has committed to review the length of the 12-month ‘soft landing’ period and to allow a right of appeal against penalty points as they are incurred. The Tax Faculty welcomes the fact that a considered approach is being taken.

Late payment penalties

The proposal to charge penalty interest was the preferred option of respondents. HMRC intends to consult on specific proposals in 2017.


The proposal to align interest rules across taxes was supported by most respondents with the current rules for income tax and Class 4 NICs being the likely basis. HMRC intends to consult on specific proposals in 2017.