In the consultation document Making Tax Digital: Tax administration, published on 15 August 2016, the Government made proposals for sanctions for late submission and late payment. In the Summary of Responses, published on 31 January 2017, the Government recognised that more work needed to be done to get the late submission penalty model right and confirmed that it would continue to explore penalty interest as a sanction for late payment of tax.

This consultation set out Government’s three possible models for late submission penalties (A: Points-based, B: Regular review of compliance, or C: Suspension of penalties). The proposals were developed with the Making Tax Digital for Business obligations in mind but the consultation also explored the suitability of the sanctions for other regular submission obligations. The consultation also provided an update on late payment penalty interest as a sanction for late payment of Income Tax, Corporation Tax and VAT.

The consultation closed in June 2017 and the Government published a summary of responses document in December 2017

• 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.

Draft legislation to introduce these measures was published.