The Low Incomes Tax Reform Group (LITRG) has given a qualified welcome to a new ‘penalty point’ model for late submission of tax returns, contained in draft legislation published today. The group thinks the penalty point approach should be easy for taxpayers to understand, but is concerned that other aspects of the new regime may prove more complex.
In addition to the ‘penalty point’ model LITRG has welcomed the inclusion in the draft Finance Bill of provision for HMRC to provide for a ‘familiarisation period’ for penalties for failure to make returns.
When responding to a consultation on the design of sanctions for late submission and late payment, LITRG had specifically recommended that application of a new penalty regime should be deferred to support taxpayers adjusting to changes in the tax system, in particular Making Tax Digital, and subsequent changes in the penalty regime.
However, under the draft legislation penalties for late payment of tax will start to apply 15 days from the due date – a time period which LITRG indicated during consultation did not strike the right balance between fairness for those that pay on time and providing a reasonable time to arrange payment. In addition the group had raised concerns that the introduction of a further 15-day period in which a reduced penalty might apply would add complexity. These concerns have not been taken on board – LITRG had suggested that a straightforward 30 day period for payment would not only be fairer, but would also be simpler for taxpayers to understand.
LITRG Technical Officer Joanne Walker said:
“HMRC have consulted on many aspects of the penalty regime in recent years, particularly with a view to ensuring that it is fit for purpose for Making Tax Digital. This is welcome, as is the fact that a number of LITRG concerns have been taken on board.
“We are pleased that a penalty point model has been adopted for late submission of returns, as in general, we think this should be easy for taxpayers to understand. There are aspects of the regime that may prove complex to administer and explain to taxpayers however, since there are three sets of rules for the application of points, which are largely determined by the frequency of tax returns required.
“The inclusion of key safeguards, such as a provision for HMRC to allow for familiarisation periods, provisions for the expiry of old points and reasonable excuse are essential for the protection of taxpayers.
“It is now essential that clear and comprehensible guidance is made available to taxpayers to ensure that they can adapt to and understand these new penalties.”
“It seems it’s not just England’s footballers that are getting better at how they deal with penalties. And HMRC’s new approach will hopefully get the right results too.”More Articles by Chartered Institute of Taxation (CIOT) ...