MTD: government response on voluntary pay as you go

On 31 January 2017, HMRC published the outcome of the consultation on Making Tax Digital: Voluntary pay as you go. 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 comments made by respondents have been summarised by HMRC as:

  • concerns that the scheme would remain voluntary, despite the ministerial commitment that there would be no changes to the statutory due dates during this parliament;
  • the complexity of the customer view in the digital tax account;
  • the appetite for an option to make a voluntary payment;
  • the speed with which HMRC might handle repayments; and
  • a customer’s loss of control in the allocation of payment against a particular tax.

The government has said in response:

  • HMRC will reinforce the voluntary nature of the payments in guidance.
  • The detailed design will be informed by further research to address the concern about complexity. The maximum number of payments in a period is to be determined. HMRC will work with the DWP on interactions between MTD and universal credit. The proposal to introduce a period of grace before applying payments to liabilities will not be taken forward, as it would add complexity.
  • Allocation and set-off rules will be further considered. HMRC will develop robust allocation rules taking into account benefit entitlements and other factors. In the initial stages of MTD voluntary payments will be treated as payments of income tax and Class 4 NICs, as the systems to allocate across taxes will not yet be in place.
  • In a relaxation from the position in the consultation, repayments will be restricted in the seven days before a liability becomes due, but only if all a tax liability within the previous 12 months has not been paid on time. Repayment applications within 30 days will trigger a warning message.
  • For now, payments on account will not be adjusted on the basis of quarterly updates but there will be functionality to compare in-year updates with payments on account and to trigger messages if it appears there might be a shortfall.
  • HMRC is assuming that 10% of the self assessment MTD population would take up voluntary PAYG but acknowledges that the responses suggest a low take up. The government acknowledges that HMRC will need to build confidence by having a quick and reliable process for handling payments and repayments. Respondents’ comments that paying interest would act as an incentive are noted; there are no current plans to pay interest but this will be kept under review.

The fact that the scheme is voluntary mitigates against any concerns. The detailed design will be critical and the Tax Faculty will continue to monitor the changes and to work with HMRC. We welcome the changes that have been made since the original proposals.