MTD: HMRC publications on penalties, interest and impact

HMRC issued three publications relating to MTD on 1 December 2017:

• The outcome of the previous consultation on late submission penalties,
• a new consultation on interest and late payment penalties and
• a revised impact assessment to take account of the changes to the implementation timetable for MTD announced on 13 July 2017.

Making Tax Digital: sanctions for late submission and late payment - summary of responses confirms the announcement at Autumn Budget 2018 that the government intends to proceed with a points based penalty system for late submission. Some further details were provided on:

• the response addresses the fact that individuals may have separate reporting obligations for each trading and property business and are at risk of accruing penalty points for each submission but the government does not propose to change its approach
• a maximum lifetime for points of 24 months
• there will be a single points total for each partnership. Partners will be jointly and severally liable for any penalties charged to the partnership but penalties will not be charged to each partner individually
• the effect of continuing to fail to submit a return. To provide motivation to submit returns after the deadline and once a point is accrued, it will not be possible to reset points to zero unless all relevant submissions for the tax concerned for the previous 24 months have been filed

Comments are not being invited at this stage but there will be a technical consultation on the legislation in 2018. The government then intends to apply the new model in phases to different taxes. It is anticipated that the model will first be implemented for VAT, commencing in 2020, following a soft landing period of 12 months.

Making Tax Digital: interest harmonisation and sanctions for late payment presents options for aligning rules and rates of interest across the main taxes and for late payment penalties. The government is now proposing a hybrid model combining elements of the current late payment penalties for income tax with an interest type calculation. The Tax Faculty would welcome comments from members on these proposals as soon as possible but by 2 February 2018 at the latest please; by email to caroline.miskin@icaew.com.

The third publication, Making Tax Digital: changing the scope and pace - technical note provides a revised statement of impacts for the Making Tax Digital for Business programme, reflecting the changed scale and scope of the mandatory elements (i.e., only for VAT initially) announced in the government’s written ministerial statement of 13 July 2017.

Despite the reduced scope of MTD, HMRC estimates a contribution of £1bn by 2022/23 from closure of the tax gap due to error and failure to take reasonable care. HMRC estimates steady state savings for businesses of £16m per annum. The estimated transitional costs are £131m before tax relief; this is £110 approximately for each of the 1.2m businesses affected. This is a very low estimate; it seems difficult to imagine that the average cost to business to implement the changes will be less than a day’s work.