HMRC’s plans to introduce a new penalty regime for late payment of tax have been strongly criticised by the Association of Taxation Technicians (ATT), which says the proposals risk producing unfair outcomes for taxpayers who had agreed to pay tax liabilities by instalments
The association’s comments form part of its feedback to a consultation on schedule 13 of the Finance Bill 2018-19, relating to the penalty consequences of breached time to pay (TTP) agreements.
These are designed to promote early engagement with HMRC whenever a tax liability cannot be paid in full. They do this by introducing a graded range of sanctions running from a complete avoidance of any penalty where the initial proposal is put to HMRC within the 15-day period to a three-pronged penalty where no proposal is made before the expiry of the 30-day period.
ATT is concerned that the proposals as drafted mean that any breach of the terms of a TTP agreement can result in that TTP agreement being treated as if it had never existed. That could leave the taxpayer exposed to the same level of penalties as if they had made no attempt to pay their liabilities on time or agree a basis of payment with HMRC.
Jon Stride, co-chair of ATT’s technical steering group, said: ‘We can see the sense in incentivising early contact with HMRC whenever a taxpayer has been unable to pay a tax liability by its due date. We can also see the need to prevent abuse of the TTP provisions – for example someone entering a TTP agreement with no intention of sticking to its terms.
‘What really concerns us is the idea that a taxpayer who has kept to the terms of a TTP agreement and made all the instalment payments on time up until the point when, for whatever reason, they breach its terms should lose all credit for their actions up to that point and incur the same level of penalties on all the instalment payments that had been made as if there had never been a TTP agreement.’
ATT also warns that it is likely that any taxpayer in that position will assert that they had a reasonable excuse for the breach in question, and as a consequence HMRC will face spending additional time and resources, including possibly a tribunal, to resolve the matter.
Stride said: ‘We think that it would also open up the possibility of the tax tribunal concluding that the factual existence of the TTP agreement prior to its breach meant that the taxpayer had a reasonable excuse for paying the tax liability in accordance with that agreement rather than as a single sum on its due date.’
In its response, ATT suggests alternative ways of achieving appropriate and proportionate penalties where a TTP agreement is breached so that challenges to penalties can be avoided.
The association also highlights concerns that HMRC could potentially find itself fielding large numbers of TTP requests in February, following the self assessment filing deadline of 31 January, and suggests this might put a strain on resources and increase the risk of unfair treatment of some taxpayers.
ATT suggests HMRC looks at the feasibility of a ‘ticketing’ system whereby taxpayers who apply with proposals for a TTP agreement but whose calls cannot be taken because of the high volume are given a TTP-specific call reference number which clearly identifies the date of the initial contact, in order to ensure that there is an accurate log of when they first made contact for the purposes of determining the 15-day rule.
ATT’s response to HMRC is here
Report by Pat Sweet