HMRC plans points-based overhaul of penalties for late tax payments

HMRC is considering an overhaul of the penalties regime for late payments by businesses and individuals for corporation tax, income tax and self assessment.

The measure proposes a points-based penalty system for late payment, and two changes to the way that interest is charged and repaid for VAT, with the VAT changes coming into force from April 2020. There is no date for the launch of the points-based system.

From 2020, late payment penalties will consist of two penalty charges: one charge based upon payments and agreements to pay in the first 30 days after the payment due date, and another charge based on how long the debt remains outstanding after the 30 days.

However, if a ‘time to pay’ agreement is not agreed then the payment window will only be 15 days. There will be no penalty if payment in full is made before end of the 15-day period.

If a time to pay agreement is made but the taxpayer then breaks the deal and fails to pay, a second penalty will also be charged.

As with existing penalties there is a ‘reasonable excuse’ clause, with the usual provisos that inability to pay and reliance on a third party are not acceptable excuses.

Although the VAT penalties will take effect from April 2020, the government has not confirmed yet when the income tax and corporation tax penalty system will come into force.

HMRC said: “The changes will ensure that people who pay late can avoid a penalty if they take action to make arrangements to pay, and that those that do not will receive a penalty that is proportionate to both the value of the debt and the amount of time it is outstanding for.

“The measure is designed to encourage those who cannot pay to agree a time to pay arrangement as quickly as possible and only penalise those who do not.”

Both the first charge and second charge will be notified to the customer and any amounts shown as payable on the notice will be required to be paid, or appealed, within 30 days of the date of that notice.

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