The Government has published the outcome of its consultation on penalties relating to Making Tax Digital, which set out proposals for the new late payment model alongside the closer harmonisation of interest rules and operation.

The interest harmonisation proposals received broad support across all taxes, and the Government intends to proceed broadly as proposed in the consultation. Some specific concerns were raised with regards to VAT repayment interest not being paid where there are missing returns or for periods of reasonable enquiry. The Government has considered these concerns and decided that where a repayment return is received and there are other outstanding returns HMRCwill pay interest from the date any outstanding returns are submitted, subject to reasonable enquiry.

The majority of respondents were broadly in favour of the late payment penalty proposals. Some expressed some concern about complexity, and regarding specific issues such as the initial penalty being applied 15 days after the payment due date. There were also queries about the interaction with Time to Pay arrangements (TTP) and the length of time taken to finalise these agreements with HMRC. The Government has considered both areas of concern in detail. It has decided that to be fair to the vast majority who pay on time, penalties should be calculated on debts remaining due after 15 days from the payment due date although on a mitigated basis where payment is made or a TTP arranged up until 30 days after the due date. Where a successful TTP agreement is made, the government will take the date of contact with HMRC as the effective date for the purpose of late payment penalties.

Finance Bill 2018-19 will implement these changes

• Clause 31 and Schedule 13: Penalties for failure to pay tax: introduces a new two tiered penalty model for individuals and businesses that fail to pay their tax liability on time. It set outs how the penalty will work, reasonable excuse provisions and the appeal process. This clause and Schedule introduce a new two tiered penalty model for individuals and businesses that fail to pay their tax liability on time. It set outs how the penalty will work, reasonable excuse provisions and the appeal process.
• Clause 32 and Schedule 14: VAT: repayment interest: make amendments to Finance Act 2009 relating to repayment interest and VAT. The changes come into force on a day to be announced and by way of regulations. The Schedule introduces changes to FA09 S102 and Schedule 54 that bring VAT into the scope of the provisions for Repayment Interest. The changes generally ensure that repayment interest works in the same way for VAT as it currently does for income tax self assessment with the exception of two areas around reasonable enquiry and missing returns.