MTD: New points based penalty model

    Earlier this year HMRC began a consultation exploring changes to the penalty system for late submission failures under Making Tax Digital (MTD). The decision has now been made to adopt a points based model, with draft legislation expected in the summer of 2018.

    The new penalty model will see the introduction of a system where a late submission of a return or filing obligation under MTD will attract a point. 

    Once points have been accumulated up to a certain threshold a penalty will be charged for every subsequent failure to provide a submission on time. The system will work much like the accumulation of driving offence points, with the points total reset to zero after a period of good compliance.

    Points will be accumulated per business, so people with multiple businesses will see points allocated to each single business, rather than added to a cumulative total for all of the businesses.

    Partnerships will acquire points where a partnership submission has been made late, with the individual partners held jointly and severally liable for any subsequent penalty.

    Penalty thresholds

    The penalty thresholds are going to be as follows:
    Submission frequency Penalty threshold           
    Annual  2 points
    Quarterly 4 points
    Monthly 5 points

    Points reset

    The summary of responses consultation report states the government is ‘minded’ to use the following periods of good compliance before resetting penalty points back to zero.
    Submission frequency Good compliance period
    Annual  2 submissions
    Quarterly 4 submissions
    Monthly 5 submissions

    Both the accumulation of points and any subsequent penalties will be fully appealable.

    Timing and application

    The first tax for which the new model will be implemented is likely to be for VAT reporting under MTD. 

    April 2019 sees the start of mandatory reporting of VAT obligations for all VAT registered businesses with a turnover in excess of £85,000. A 12 month soft landing period will follow, before the new points system commences in 2020.

    Wider rollout

    The government intends to apply the same model to other taxes where a regular submission is required, so the £100 penalty for the late submission of a self-assessment return will go at ‘an appropriate point in the future after an appropriate notice period’.

    Penalty amount

    The actual penalty amount has yet to be announced.

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