Making Tax Digital: penalty points and punitive interest

Philip McNeil By Philip McNeill, Head of Taxation, (Tax practice and small businesses taxes)

30 June 2017

Making Tax Digital will change not only accounting and tax, but the penalty regime too.

The recent consultation on penalties proposes abolition of the current late submission and late payment penalties.

The automatic £100 for missing the end of year filing date would go, along with 5% late payment penalty. Instead we could see a penalty points system – like a driving licence – with a bad mark per return, and a financial penalty after set number of missed submission. This would apply initially to Corporation tax, VAT, and MTD quarterly updates.

In place of a fixed percentage rate late payment penalty, punitive interest rates would be added to overdue tax. HMRC is suggesting a rate of 8% over Bank of England base rate.

HMRC outlines three penalty models, penalty points, periodic review and time-related suspension.

In its response ICAS highlights the advantages of an easy to understand penalty point system; while pointing out some of the pitfalls if this were to be applied collectively to all taxes. Periodic review brings unwanted uncertainty and suspension acts best as a deterrent when combined with the penalty point model.

Clearer, more prominent guidance on Time to Pay is essential, while interest rates for overdue tax must be proportionate. Multiple interest rates could add confusion, while notional rates may encourage some taxpayers to play the system.


  • Tax

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