Opinion Former Article

Budget smallprint reveals further delay to HMRC penalty reforms

The Chartered Institute of Taxation (CIOT) is disappointed by the news that reforms to HMRC’s penalty regimes are to be further delayed.

The delay is announced in the Overview of Tax Legislation and Rates (OOTLAR)1 published alongside Monday’s Budget. It applies to reform of the regimes for both late submission of tax returns and late payment of taxes. HMRC say that the delay is to allow them more time to consider further the communications needed for successful implementation. The government has said that, despite this delay, it remains committed to the reform and intends to legislate in a future Finance Bill.

John Cullinane, CIOT Tax Policy Director, said:

“We are broadly supportive of these reforms to HMRC’s penalties regimes, so we are disappointed by this further delay, though as with any reform, we acknowledge that it is more important to do it right than to do it quickly. If HMRC say they need until April 2021 – or later - to implement these changes then we will take them at their word and make the best use of the extra time to work with them on the details of the new regimes and publicity around their introduction."

The new penalty regimes for late payments of tax and late submissions of tax returns were originally expected to be introduced alongside Making Tax Digital (MTD) for Income Tax from April 2018 and would have affected a very large number of taxpayers. Deferral of MTD for Income Tax provided more time to refine the new penalty regime, but even then, it was not expected to be ready for MTD for VAT from April 2019 and was predicted to commence from April 2020. Draft legislation for the changes appeared in the Draft Finance Bill published in summer 2018 but will now be dropped from this year’s bill (to be published on Nov 7). The Budget announcement means that the new regime will not be in place until April 2021 at the earliest.

John Cullinane continued:

“The penalty regime designed for MTD will now not be in place until at least two years after MTD becomes mandatory for VAT. HMRC have already confirmed that the unpopular VAT default surcharge regime will remain in place for 2019/20, the first year of MTD for VAT. It now appears that it will continue for at least 2020/21 and maybe even beyond that. The existing penalty regime for VAT is not well suited to MTD, and we are concerned around the complexities and administrative burdens that will result. The penalty point model being proposed for late submissions will work better with the MTD reporting system.

“With MTD for Income Tax not coming in before April 2020 at the earliest, it would make more sense now, given that there is this delay, for the new penalty regime to be brought in at the same time for all taxes.  We hope HMRC will take the opportunity to do this. It is nonetheless disappointing that there has been a failure to deliver these changes effectively from the outset.

“We are confident that this delay will not affect HMRC’s pledge to take a lenient approach to imposing penalties in the first year of MTD for VAT.”

Notes for editors

1. See paragraph 2.54 (page 30 of 281) of Budget 2018: Overview of Tax Legislation and Rates (OOTLAR) published 29 October 2018. See here.
2. The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 18,400 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact:  Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk
(Out of hours contact: George Crozier, 07740 477 374)

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