HMRC looks at Making Tax Digital model for penalties

Although there has still not been any confirmation following the General Election, Making Tax Digital for business (MTD) is still expected to be rolled out from April 2018.

To prepare for one of the biggest changes to the UK’s tax system in years, HM Revenue & Customs (HMRC) has been fine-tuning a system of late submission and late payment penalties, which are due to be introduced in April 2019 after a year-long respite to give taxpayers the chance to familiarise themselves with Making Tax Digital.

HMRC collected feedback on three options for a late submission model during a consultation it ran from 20th March to 11th June.

Points-based system – this would see taxpayers receive a point every time they fail to file on time. Once a certain number of points has been accumulated, a penalty would be charged. The points would reset after a period of compliance. HMRC has revised this model from an earlier proposal to apply per tax rather than across all taxes.

Regular review system – an HMRC automated regular review of customers’ compliance. This model will see a taxpayer given penalties based on their record of compliance, although there would be no penalty for the first failure during the set period.

Suspension of penalties system –  A taxpayer would be granted more time to complete their submission and avoid the penalty. As with the regular review system, this model would also not apply a penalty for the first failure.


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Although the consultation was mainly focused on the late submissions model, it also considered using penalty interest as a sanction for late payment of corporation tax, income tax and VAT. Separate to this, HMRC charges 2.75% late payment interest for main taxes and duties. HMRC differentiated the two payments as the late payment interest is technically not a penalty for late payment.

However, the Association of Taxation Technicians (ATT) criticised this option as it may cause unnecessary confusion. Although HMRC outlines precise differences to the two payments, for taxpayers it would be viewed as “a distinction without a difference”.

Yvette Nunn, co-chair of ATT’s technical steering group, said: “On late payment interest, we see no practical merit in HMRC simultaneously charging a taxpayer two different rates of interest on the same overdue tax. Simplicity and effectiveness both point to the benefit of a single penalty rate. In terms of timing, we think that the penalty rate should apply once the tax is overdue by 30 days, rather than the 14 days proposed by HMRC.”

By Andy Gibbs, ATT, CTA
Last updated June 2017

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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