HMRC penalty reforms delayed until 2021, Budget reveals

Published alongside the Budget on Monday, the Overview of Tax Legislation and Rates revealed that reforms to HM Revenue & Customs (HMRC) penalty regimes are to be further delayed until April 2021 at the earliest.

The delay applies to the reform of the regimes for both late submission of tax returns and late payment of taxes.

The Chartered Institute of Taxation (CIOT) has expressed its disappointment with the news but, the revenue stated that the delay is to allow it more to consider further the communications needed for successful implementation.

Commenting, CIOT tax policy director John Cullinane said: “We are broadly supportive of these reforms to HMRC’s penalties regimes, so we are disappointed by this further delay, though as with any reform, we acknowledge that it is more important to do it right than to do it quickly.

“If HMRC say they need until April 2021 – or later - to implement these changes then we will take them at their word and make the best use of the extra time to work with them on the details of the new regimes and publicity around their introduction.”

The government has said, despite the delay, it remains committed to the reform and intends to legislate in a future Finance Bill.

Originally, the new penalty regimes for late payments of tax and late submissions of tax returns were expected to be introduced alongside Making Tax Digital (MTD) for income tax from April 2018, and it would have affected a large number of taxpayers. However, the CIOT stated the deferral of MTD for income tax until April 2019 provided additional time to refine the new penalty regime, but the Budget announcement means that the new regime will not be implemented until April 2021.

Cullinane added: “The penalty regime designed for MTD will now not be in place until at least two years after MTD becomes mandatory for VAT. HMRC have already confirmed that the unpopular VAT default surcharge regime will remain in place for 2019/20, the first year of MTD for VAT. It now appears that it will continue for at least 2020/21 and maybe even beyond that.

“The existing penalty regime for VAT is not well suited to MTD, and we are concerned around the complexities and administrative burdens that will result. The penalty point model being proposed for late submissions will work better with the MTD reporting system.”

The tax policy director urged that “it would make more sense” for the new penalty regime to be introduced at the same time for all taxes, and said he “hopes” HMRC will take the opportunity to do this.

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