Global Daily Tax News, HMRC Issues Regulations To Better Enforce New Penalties Regime, (May 15, 2024)

HM Revenue and Customs has released draft regulations governing non-compliance penalties.

The Penalties for Failure to Pay Tax (Schedule 26 to the Finance Act 2021) (Assessments) Regulations 2024 relate to the reformed penalty system for late payment of tax, which is set out in Schedule 26 to the Finance Act 2021. Penalty Reform began for VAT taxpayers from January 1, 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 published allows 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.