Experts fail to fathom HMRC’s new penalty idea

A body of tax experts says it cannot fathom a new proposal for a 2.5 per cent tax-geared penalty for slightly late payments to HMRC.

The Association of Taxation Technicians believes it would be “much simpler and more understandable” to taxpayers for the penalty rate of interest to accrue immediately from the payment ‘due date.’

Their only important provision is that the penalty would be cancelled if payments or a Time To Pay arrangement was made within the first 15 days from the due date, the association said.

“This offers, in effect, a carrot for making payment or initiating a TTP arrangement in the first 15 days, rather than a stick for failing to do so,” the ATT says.

Under HMRC’s proposal, made in a consultation on penalties, tax paid (or made the subject of a TTP arrangement) within the first 15 days after the due date of payment would incur no penalty.

However, tax paid or made the subject of a TTP arrangement in the 16 to 30-day period would incur a penalty calculated as 2.5 per cent of the tax being paid late.

“We cannot understand…why HMRC think that encouragement to pay more promptly would be delivered by a penalty of 2.5 per cent of the tax outstanding after just 15 days,” says ATT’s Yvette Nunn.

“That equates to an annual interest rate of some 57 per cent. It would result in such high penalties on larger amount of unpaid tax that taxpayers who incurred the penalty would be very likely to appeal against it. The single 2.5 per cent charge incurred at day 16 also provides no additional incentive to pay before day 30.”

By contrast, the association’s proposal would see the penalty rate start to accrue from the due date, but the entire fine would “evaporate” if the tax was paid, or a TTP arrangement made, by day 15.

“It would be much simpler to understand and avoid disproportionate levels of penalty,” Nunn added. “It would also incentivise payment as early as possible within the 16 to 30-day period as the penalty rate of interest would accrue daily over that period.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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