Jeffrey CohenLondon law firm Mackrell Turner Garrett is calling on taxpayers to prepare themselves for changes to the UK’s tax filing and payment system to ensure they avoid being caught out by new penalty systems.

Under a newly proposed penalty regime, announced in the draft UK Finance (No.3) Bill on 6 July, amongst a raft of other important tax changes, the existing automatic £100 late filing penalty for late tax returns will be replaced with a points-based system designed to crack down on repeat offenders.

First announced back in the Budget in 2017, the points system was initially part of the Government’s Making Tax Digital initiative, but will now form part of a wider campaign to deal with late filings.

Designed to be less rigid than the current system, the new points regime will utilise each taxpayers compliance history when issuing out penalties.

Points will be awarded for each late filing, and a financial penalty will be triggered after the number of points awarded exceeds a certain threshold.

Fortunately, these points will expire if the taxpayer complies in future or may be waived by HMRC following an appeal or if they are found to be inappropriate.

Jeffrey Cohen, Head of Mackrell Turner Garrett’s Private Client team and an expert in tax law, said: “Initially this new system will be brought in to deal with VAT and income tax self-assessment obligations.

“However, this will eventually be rolled out for all taxpayer reporting requirements, so it is important that businesses and individuals are ready for the changes ahead. While the penalties will be fairer for those who only occasionally fail to comply, those who regularly fail to meet their responsibilities could be faced with a much larger bill.”

Alongside the new late filing system, HMRC will also introduce a two-tier system for late payments which will launch in April 2020.

“This new system for Making Tax Digital is far more onerous than current arrangements and will see penalties calculated on tax still owed after 15 days from its original payment date,” said Jeffrey.

“This penalty could be halved if a payment is made or a Time to Pay (TTP) agreement has been sought between 16 and 30 days after the original due date”.

“However, those who continue to disregard the Revenue’s demands past 30 days will receive a full penalty and an additional daily penalty which will be accrued until payment or a TTP agreement is made,” said Jeffrey.

“This new system gives taxpayers less time to make necessary investigations, appeals or arrangement to pay late taxes. While we all want a system where the right amount of tax is paid on time the Government has to appreciate that taxpayers do not live in a perfect world.

“While this new approach to penalties for late filing and payment of tax is still very much a working draft I fully expect HMRC to implement a system that if not identical at least mirrors these proposals.

“It has, therefore, never been more important for businesses and individuals to seek specialist advice to not only sure they are reporting and paying tax on time but also to ensure they are paying the right amounts,” added Jeffrey.

Formal consultation on these and other measures in the bill will remain open to the public until 31 August, but Jeffrey warned that the Government could make further changes in the Budget in November 2018 before it is introduced to Parliament and enacted as the Finance Act 2019.

If you would like legal advice on your tax affairs or require assistance with the planning of tax, why not speak to the team at Mackrell Turner Garrett by calling 00 44 (0) 207 240 0521 or emailing jeffrey.cohen@mackrell.com