![\"MTD\"](\"https:\/\/www.goodmanjones.com\/blog\/wp-content\/uploads\/2016\/09\/MTD-199x300.png\")
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The HMRC Tax Administration consultation document is consulting on four areas:<\/p>\n
This consultation does not include other aspects of tax administration. Changes to inaccuracy penalties will be covered in subsequent consultations. There is no proposal to introduce a power to enable HMRC to enquire in-year into regular updates, nor increase the overall number of compliance\u00a0interventions as a result of these updates.<\/p>\n
There will be a new obligation for certain customers to keep records digitally on software that links to and updates HMRC. Existing record keeping legislation will need to be modified to reflect those proposals.<\/p>\n
HMRC want a new power to enquire into the regular updates and check any of the information that is included in a customer\u2019s End of Year declaration and is used to calculate their tax. The customer\u2019s digital records may form part of any enquiry.<\/p>\n
HMRC propose a power to make determinations of End of Year declaration as with Tax Returns.<\/p>\n
They propose to replicate the power for HMRC to correct obvious errors made in the End of Year declaration.<\/p>\n
In MTD business customers will need to provide regular updates. This consultation proposes a new way of addressing failures to provide regular updates and carry out the End of Year declaration.<\/p>\n
\u201cInstead of applying penalties to each failure, we propose a much more gradual model whereby each failure would attract penalty points. Only once the points reach a set level would a penalty be charged.\u201d<\/p>\n
Once a penalty has been incurred, the customer would incur further penalties if they failed to meet their subsequent submission obligations. The points total would remain unchanged until such time as a sustained period of compliance caused it to be re-set to zero.<\/p>\n
The points total would be re-set to zero after the customer has achieved 24 months of compliance with their submission obligations.<\/p>\n
See Diagram 1\u00a0for an example of how points based penalty regime would work.<\/p>\n
![\"Appendix](\"https:\/\/www.goodmanjones.com\/blog\/wp-content\/uploads\/2016\/09\/Appendix-1-300x300.png\")
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HMRC propose 12 months as an appropriate length of time to allow customers to become familiar with the new obligations before the new penalty regime comes into effect.<\/p>\n
Many customers are subject to a number of separate obligations. For example, an individual in business and having employees would have to provide quarterly updates and finalise those updates after the end of the tax year for their own Income Tax purposes and regularly submit PAYE information about their employees via Real Time Information (RTI). In practical terms, all submissions due in the same calendar month would have to be treated as being due \u201cat the same time\u201d.<\/p>\n
The government would explore options for taking account of the customer\u2019s compliance history across all of the taxes they are involved with in developing a new late submission penalty.<\/p>\n
See Diagram\u00a02 for an example of how this would work.<\/p>\n
![\"appendix](\"https:\/\/www.goodmanjones.com\/blog\/wp-content\/uploads\/2016\/09\/appendix-2-300x289.png\")
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The basic points-based penalty would be unsuitable for occasional obligations (such as the filing of Inheritance Tax returns). In these cases it is unlikely that points incurred could act as a warning system to encourage a return to compliance.<\/p>\n
An alternative to points based system is the Escalator Model \u2013 see Diagram\u00a03<\/p>\n
Diagram 3<\/p>\n
![\"Appendix](\"https:\/\/www.goodmanjones.com\/blog\/wp-content\/uploads\/2016\/09\/Appendix-3-300x221.png\")
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The basic model is designed to be simple but it lacks an incentive for those who have missed making a particular submission to remedy that failure. One way to address this would be for customers to incur further points to reflect the fact that a submission was still outstanding. This would focus the customer\u2019s attention on remedying what has already gone wrong as well as encouraging good compliance in the future.<\/p>\n
The escalator model might be unsuitable for monthly obligations because points could accumulate very quickly and the customer might have insufficient time to heed and act upon the warning.<\/p>\n
There are two proposals which are:<\/p>\n
A. The use of penalty interest to be charged on customers who fail to pay in full
\nwithin fourteen days of the due date, or who before that date have failed to enter into arrangements to pay over an agreed period to which they then adhere.<\/p>\n
B. A revision of existing legislation to deliver an aligned penalty regime for income tax, VAT and corporation tax per Models 1 & 2<\/p>\n
Model 1 – Introduce a model based on the Income Tax late payment penalty regime for each of the three taxes coming into scope of MTD.<\/p>\n
Model 2 – Introduce a tapered system where the late penalty percentage rate increases the longer the debt remains outstanding. This would encourage customers to fulfil their payment obligations sooner, before a higher penalty rate is reached.<\/p>\n
HMRC propose to continue with the current rules for Income Tax and Class 4 NICs when MTD starts in April 2018.<\/p>\n
We will be responding to HMRC\u2019s consultation<\/a> and making representations on our clients behalf\u00a0so please let us have your views by emailing MTD@goodmanjones.com<\/a>.<\/p>\nOther areas covered by the consultation<\/h2>\n