Taxpayers who fail to use Making Tax Digital, the Government’s all-new digital tax system, will face fines of up to £3,000, according to a consultation paper released today.
Making Tax Digital will see the end of the paper tax return and force the majority of taxpayers to file quarterly digital tax reports.
In the new consultation paper, HM Revenue & Customs (HMRC) said deliberate failure to keep digital records may result in fines of up to £3,000.
Fines for late submissions were not specified, which may mean that they will follow the current penalty charge of £100.
However, where fines are automatically charged under current rules, fines for Making Tax Digital will operate under one of three suggested schemes.
Under option 1, a tiered points-based system, taxpayers will receive points for non-compliance, which will result in a fine once a penalty threshold has been met.
The number of points given will be determined by the severity of the error.
HMRC adds that long periods of “good behaviour” will result in points being wiped from a taxpayer’s account.
It said firms will also be given a 12-month period where they can adjust to the new system and not be fined for late submissions.
Under option 2, HMRC will conduct an annual review of compliance – an automated yearly review of taxpayers’ submissions.
HMRC proposes ‘that for customers who provide an annual submission (for example, an annual VAT return or income tax self-assessment return) the review would be carried out within two months of the deadline for providing the submission’.
It adds that taxpayers would be contacted once a missed submission was identified and that they would be given the opportunity to remedy their tax affairs.
The third and final option, suspended penalties, would see fines only charged if a taxpayer fails to submit a late return within a specified period of time.
The consultation states that suspension could be applied on more than one occasion, but ‘it is not the Government’s intention to encourage taxpayers to establish a pattern of repeatedly providing submissions late, so the number of occasions on which a penalty would be suspended would need to be limited’.
The consultation paper, ‘Making Tax Digital: sanctions for late submission and late payment’, is available here.