A major taxation body is calling for HMRC to make its recently announced 2.5 % tax-geared penalty more straightforward, and to simplify the new tax penalty.

HMRC has outlined a series of proposals which would see a penalty for late payment across a spectrum of taxes.  One of these new additions to the legislation is particularly important.

A new penalty is to be implemented where the delay in paying a tax liability is between 16-30 days.

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At present, penalty provisions don’t come into play until the delay goes past the 30 day mark. However, this is soon about to change.

Under the new proposals, if outstanding tax is paid within the first 15 days, no penalty will occur. Once the 16th day passes though, a 2.5% interest rate will kick in.

Call to simplify the new tax penalty

The Association of Taxation Technicians (ATT) says there is a simpler method. They suggest having the penalty rate of interest kick in once the due date passes . They add though that it should be cancelled if payment or a Time to Pay (TTP) arrangement was made within the first 15 days from the due date.

This, the ATT says, would help making payment in the first 15 days, or at least arranging a TTP.

“We can understand the government’s objective to achieve a balance between fairness to those that pay on time and flexibility to those that need time to make arrangements to pay a tax liability,” said Yvette Nunn, co-chair of ATT’s Technical Steering Group.  Nunn went on to add “We can also understand why HMRC want those taxpayers who need to make a TTP arrangement to engage positively with HMRC as early as possible.”

Huge interest rates

“What we cannot understand is why HMRC think that encouragement to pay more promptly would be delivered by a penalty of 2.5% of the tax outstanding after just 15 days. That equates to an annual interest rate of some 57%. It would result in such high penalties on larger amount of unpaid tax that taxpayers who incurred the penalty would be very likely to appeal against it. The single 2.5% charge incurred at day 16 also provides no additional incentive to pay before day 30.”

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Nunn believes ATT’s suggested approach would be “much simpler to understand and avoid disproportionate levels of penalty”.

“It would also incentivise payment as early as possible within the 16 to 30 day period". "The penalty rate of interest would accrue daily over that period,” she added.

Contractors who handle their own taxes should take note of the changes, as any slip up could soon cost them.