UK’s His Majesty’s Revenue and Customs (HMRC) announced on 14 May, 2024, a public consultation regarding the draft regulations, to introduce provisions under paragraph 16(2) of Schedule 26 to the Finance Act 2021, to assess penalties for late tax payments.
These draft regulations relate to the reformed penalty system for late payment of tax.
Penalty Reform began for VAT taxpayers from 1 January, 2023, and from April, 2024, for Income Tax Self-Assessment taxpayers who chose to volunteer to test the Making Tax Digital service.
For all other Income Tax Self-Assessment taxpayers, Penalty Reform will commence as Making Tax Digital is rolled out, from April, 2026, onwards.
The reformed late payment penalty is proportionate to the length of time the tax is outstanding. The later a taxpayer pays their outstanding tax, the higher the penalty will be.
Currently, the legislation allows HMRC to assess the second late payment penalty once, when the amount of outstanding tax is paid in full, within a two year assessment time limit. This time limit gives customers certainty about when penalties are charged.
The draft regulations allow HMRC to assess and charge the second late payment penalty once, where the outstanding tax has not been paid in full, towards the end of the two year time limit.
The legislative change will mean that taxpayers will not be able to intentionally avoid a second Late Payment Penalty by not paying their tax before the end of the two year time limit, thereby creating fairness between taxpayers who pay their tax and those who do not.
The consultation is set to conclude at 11:59 PM on 10 June, 2024.