HMRC are asking for your views in relation to a technical consultation for the proposed new Penalties for Failure to Pay Tax (Schedule 26 to the Finance Act 2021) (Assessments) Regulations 2024. The consultation closes on 10 June 2024.
The reformed penalty system for late payment of tax was set out in Schedule 26 Finance Act 2021. Penalty Reform has already begun:
- From 1 January 2023 reforms for VAT taxpayers.
- From April 2024 for Income Tax Self Assessment (ITSA) taxpayers who chose to volunteer to test the Making Tax Digital (MTD) service.
For all other ITSA taxpayers, Penalty Reform will commence as MTD is rolled out from April 2026 onwards.
The new system is points-based. When a taxpayer misses a submission deadline they will incur a point and these accrue separately for VAT and ITSA.
Current legislation means HMRC assess the second late payment penalty once the amount of outstanding tax is paid in full all within a two year assessment time limit. This time limit gives certainty about when Penalties are charged. But this has the effect that taxpayers can intentionally avoid a second late payment penalty by not paying their tax before the end of the two-year time limit.
The unfairness between those that pay their tax before the end of the two years and those who do not is intended to be removed by the Proposed regulations. If brought into force, the new rules will allow HMRC to assess and charge the second late payment penalty once, where the outstanding tax has not been paid in full at a time towards the end of the two-year time limit.
Responses should be sent to
Useful guides on this topic
Budget 2021: Interest and penalty reform
Penalties and interest: key measures included in Budget 2021 and Finance Act 2021.
Penalties: Late Filing
Late returns can be subject to a mix of fixed and tax geared penalties. What penalties apply for late filing? Which penalty will apply and when?
Penalties: Late Payment
What penalties are charged when tax is paid late?
Penalties: Late Filing MTD
A points-based late submission penalty regime is replacing existing late submission penalties for VAT and Income Tax Self Assessment (ITSA) under Making Tax Digital.
Grounds for Appeal: Reasonable Excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal against a tax compliance failure?
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