HMRC to address concerns raised about proposed MTD penalty model

HM Revenue & Customs (HMRC) has confirmed that will address a number of concerns raised by tax and accountancy bodies regarding its newly-unveiled Making Tax Digital (MTD) penalty regime.

In recent days, the tax authority has published details confirming that penalties for late submissions and payments under MTD will follow a ‘points-based model’.

This model will see system users receive a ‘point’ each time they fail to submit a report to HMRC on time and in line with their unique obligations. However, fines and penalties will not be issued unless a user has exceeded the appropriate ‘point threshold’ over a certain period of time.

HMRC has proposed the following point thresholds:

  • Two points for annual submissions.
  • Four points for quarterly submissions.
  • Five points for monthly submissions.

Following criticisms raised by the Chartered Institute of Taxation (CIOT), HMRC has also confirmed that any points racked up by users will have a ‘shelf-life’ – meaning they will effectively ‘expire’ after a period of good compliance.

The CIOT has set out a number of recommendations as to how the Revenue might be able to improve the proposed regime.

Most notably, it has said that the submission of already-late returns should be incentivised and that users should be able to appeal penalty points – as well as actual penalties themselves – if they feel these are unfair.

John Cullinane, of the CIOT, said: “It is going to be essential that points are clearly visible so that individual taxpayers are aware of how many points they have accrued, how they can avoid accumulating further points and when they are approaching the stage of incurring an actual financial penalty.

“HMRC’s communications in educating taxpayers about MTD and their new compliance obligations, as well as the quality of its digital systems, will be critical to the smooth operation of the regime.”

HMRC has confirmed that it will address the CIOT’s recommendations in coming weeks.