On May 14, UK HMRC consulted on draft legislation on tax penalties.
UK HMRC is seeking views on a technical consultation for proposed Penalties for Failure to Pay Tax (Schedule 26 to the Finance Act 2021) (Assessments) Regulations 2024.
These draft regulations relate to the reformed penalty system for late payment of tax, as set out in Schedule 26 to Finance Act 2021 (FA 2021), to relate to tax digitization.
Penalty Reform began for VAT taxpayers from Jan. 1, 2023, and from Apr. 2024 for Income Tax Self-Assessment taxpayers who chose to test Making Tax Digital service.
For all other Income Tax Self-Assessment taxpayers, the proposed Penalty Reform will commence as Making Tax Digital is rolled out, which will be from Apr. 2026 onwards.
The reformed late payment penalty is proportionate to the length of time the tax is outstanding, so later a taxpayer pays the outstanding tax, the higher a penalty will be.
Currently, legislation allows UK HMRC to assess the second late payment penalty once, when amount of outstanding tax is paid in full, in a two year assessment time limit.
Draft regulations allow UK HMRC to assess and charge second late payment penalty once, where outstanding tax has not been paid in full, towards end of two year limit.
The legislative change will mean 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, creating fairness between those who pay their tax, and those who do not.
UK HMRC expects tax and accounting firms, and taxpayers, to respond to consultation.
Effectiveness
This consultation on Penalty Reform will now close for comments on Jun. 10, 2024.
Penalties for Failure to Pay Tax (Schedule 26 to the Finance Act 2021) (Assessments) Regulations 2024 is in force Dec. 4, 2024.
Nov. 11, 2024 Regulation Making Power
On Nov. 11, 2024, UK Treasury issued Finance act 2021 (schedule 26 second penalty assessments) (appointed day: regulation making power) regs 2024 (StIn 2024/1132).
Nov. 12, 2024 is appointed as the day when schedule 26 comes into force for purpose of making regulations under para 16(2) of the schedule, so far as not already in force.
Paragraph 16(2) of schedule 26 provides for UK HMRC to make regulations which allow UK HMRC to asses a penalty under paragraph 8 (second penalty: tax remains due at end of 30 day period) at times or intervals before end of the further penalty period.
Regulations make provision as per para. 16(2), sched 26 to the Finance Act 2021.
Regarding assessment of penalties for failure to pay tax (late payment penalties).
Schedule provides for a two-penalty model for late payment penalties, and UK HMRC's regulations concern the issue with regard to second late payment penalty.
Tax Information and Impact Note with regard to late payment penalties was published on Mar. 3, 2021 by UK HMRC and is available on their website, accordingly.
New legislation has been cited as Penalties for Failure to Pay Tax (Schedule 26 to the Finance Act 2021) (Assessments) Regulations 2024, and is in force Dec. 4, 2024.
