HMRC's Making Tax Digital (MTD) proposals apply from April 2019 for VAT: from 2020 the self employed and landlords will be required to submit five tax returns per year. This brings about new challenges in terms of the design of penalties for late filing and payment.

HMRC consulted on a new system for late filing and late payment penalties under the MTD regime in 2016. It considered a couple of different and complicated new systems amending the current Schedule 55 (late filing) and 56 FA 2009 (late payment) penalty regimes. It considered how penalties might build up under a points based system for each late return and payment.

The proposed new systems came under fire by respondents to the consultations: they were too complicated.

In January 2017 HMRC published its responses to its consultation, saying that:

  • 'The government is committed to get the late submission penalties model right and recognises more work needs to be done on this. We intend to publish a further consultation document in spring 2017 with a view to introducing legislation at the next appropriate opportunity.
  • We also intend to consult further on specific proposals for late payment penalty interest and the alignment of interest rules in 2017.'

HMRC have also confirmed that taxpayers will be given at least 12 months before they are charged any late submission penalties.

In September 2017 a consultation was opened 'Making Tax Digital sanctions for late submission and payment'. This considered three options, a points based system, regular review of compliance, and suspended penalties for late filing, with the points based system being favoured by HMRC in their response.

In December 2017 the 'Making Tax Digital: interest harmonisation and sanctions for late payment' consultation was opened. This proposes no late payment penalties where there is a reasonable excuse.

Penalties for error in a return or document under schedule 24 FA 2007 will continue to apply. They will apply to each of the five returns made per year under MTD.


Making Tax Digital: legislation tracker

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