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MTD Penalties for Late Submissions Met with Mixed Responses

penalty, 3D rendering, rough street sign collection

The whole purpose of Making Tax Digital is to make it simpler for businesses to do their taxes right. However, the scheme has produced plenty of problems and criticisms from businesses and accountants alike. There have been lots of disagreements about the way to do it, how long it’ll take for everyone to do it and how much it could end up costing businesses.

After previously announcing unpopular responses to late submission and payment of taxes, they have now come out with three possible models for late payments and submissions:

Model A: A revision of the points-based model previously proposed. Once a certain point threshold is reached, a penalty will be charged.

Model B: This involves a regular, automated review over time with points given dependant on compliance history

Model C: Taxpayers can avoid penalties if they submit within a specified time after being late


Mixed responses

So far no clear consensus has been reached among accounting bodies. The Chartered Institute of Taxation (CIOT) have recommended that HMRC go with Model C so that taxpayers have a chance to submit again before getting penalised.

Spokesperson on MTD for CIOT, Adrian Rudd said:  “The suspension model most closely complies with HMRC’s penalty principles, which include that penalty regimes should be designed from the taxpayers’ perspective, primarily to encourage compliance and prevent non-compliance, and that penalties are not to be applied or seen to apply with the aim of raising money.”

The Institute of Chartered Accountants in England and Wales (ICAEW) on the other hand suggested that Model A would be better. This model would also include the option for penalties to be suspended.

ICAEW said: “We consider that the points-based system is the right starting point but that an element of suspension should be built into the model. Analogies with the system for points on driving licences have been drawn but what is lacking in the points-based model for submission penalties is a sufficiently strong warning and an education element (e.g. the equivalent to a course instead of points).

“The extent to which taxpayers will not understand their obligations in the early years of MTD (and in the early years of trading if the business commences once MTD is operational) is, we believe, being underestimated. Allowing for suspension once a penalty is charged, subject to a condition that the submission is made within a certain period, would promote compliance.”


The Institute of Chartered Accountants of Scotland (ICAS) are backing a combination of models A and C. They said Model A had “significant advantages” and was easy to understand. Model A also includes the ability to reset the penalties to zero after a certain period of compliance.

They support the idea of suspended penalties as outlined in Model C but agree that it’s still not ideal. They said in a response document: “Combining models A and C would result in an effective compliance model. This would also take into account the different needs and motivations of different taxpayers and sizes of business.”


Interest sanctions

Through the new consultation paper it was revealed that HMRC are still looking into penalty interest to use as a sanction for those submitting and paying their taxes late. Though this is still not set in stone.


What do you think of these new proposals? Which one would you choose? Let us know what you think.

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