The government is proposing a new hybrid model that takes on board feedback from previous consultations for late payment penalties and combines a ‘penalty charge element’ together with an ‘interest’ type calculation.

The consultation is focused on two issues. The first is bringing interest paid by and to HMRC for VAT into line with similar rules for ITSA and corporation tax so a common set of rules to apply across these regimes.

There is a question about whether the current differential interest rates for quarterly instalment payments (QIPS) payable for corporation tax should be retained as this is the only regime where taxpayers are expected to estimate their current year’s liability, rather than a payment on account. 

Secondly, it is considering a new model for charging penalties on payments made late by customers, designed to address the current diverse late payment penalty models, promote positive behavioural change, and facilitate the opportunity to apply this same model across other regimes at some point in the future. The consultation also explores how late payment penalties could work and interact with interest.

The government is proposing a model which it says addresses the concerns raised in previous consultations, is fair to those that pay on time, and encourages payment as quickly as possible.

This would ensure that the base rate is not included in calculating late payment penalties, to address concerns about double counting; provide 15 days from the due date to either pay or arrange a time to pay (TTP) arrangement without penalty; and provide up to 30 days to pay or arrange a TTP with a reduced penalty.

HMRC is proposing a hybrid model where late payment penalties include both an element charged at a percentage of the tax due; and an element charged in an ‘interest’ type calculation. It argues this will provide the flexibility which previous consultation feedback has asked for, combined with a regime that continues to encourage full payment as quickly as possible.

The government has also published the summary of responses to the recent consultation on late submission sanctions.

The consultation on interest harmonisation and changes to the penalty regime closes on 2 March 2018.

HMRC consultation Making Tax Digital: interest harmonisation and sanctions for late payment  issued 1 December 2017.

Consultation outcome Making Tax Digital: sanctions for late submission and late payment

Report by Pat Sweet