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Digital matters and administration

ICAEW Tax Faculty provides analysis of the announcements relating to digital matters and administration in the Autumn Budget 2017.

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Making Tax Digital

The Red Book includes merely a brief mention of Making Tax Digital (MTD), but leaves no doubt about the government’s intention to progress its plans for digitalisation, albeit at a slower pace and starting with VAT.

Primary legislation was enacted in ss60–62, Finance (No. 2) Act 2017 requiring digital record-keeping for income tax and VAT. This sets out the framework for the new MTD requirements for record-keeping, periodic digital updates and an end of period statement. As announced on 13 July 2017, the start date for reports is not to be before April 2019 and will then relate only to VAT and only for businesses with income above the VAT threshold.

An updated impact assessment will be published on 1 December 2017.

The MTD for VAT legislation overview, on which we commented in ICAEW REP 128/17, is likely to be formulated into draft regulations which will be published in mid-December with a consultation to run through to the end of January. This is to make sure legislation can be included in the spring Finance Act 2018.

We understand that the regulations covering MTD for income tax, which were published on 13 September 2017 and on which we commented in ICAEW REP 126/17, will not be laid before parliament until the government has made a decision on whether MTD should become mandatory for income tax, and if so when.

Late submission penalties and late payment interest

Following a consultation published by HMRC in March 2017 Making Tax Digital: sanctions for late submission and late payment to which we responded in ICAEW REP 68/17, the government has decided to replace the current penalty system for late or missing tax returns with a new points-based approach.

The details have yet to be announced, but if they follow the design suggested in the consultation, a taxpayer would receive a penalty point each time they failed to make a submission on time and would only be charged a penalty when their points total reached a particular number. The points would be reset after a period of good compliance. Points would be accrued separately for different taxes.

Draft legislation for the points-based model for late submission will be published for consultation in summer 2018.

A further consultation will look at penalties and interest due on late payments and repayments and final decisions on the system as a whole will be taken following this consultation.

Faster recovery of self assessment debt

As part of a project to update PAYE processes, HMRC started dynamic or in-year coding in July 2017. Previously when HMRC identified underpayments of PAYE the coding adjustment was made in the following tax year; HMRC now generally collects such underpayments in the tax year in which they are identified.

The recovery of self assessment debt is to be accelerated along the same lines from April 2019 with a yield of £55m in 2019/20, reducing to £20m in later years.

The PAYE regulations were changed from April 2012 to allow HMRC to collect self assessment debts up to the value of £2,999.99 by amending the tax code of individuals with a PAYE source of income.

The regulations were further changed from April 2015 and a graduated income scale which determines how much debt can be collected from individuals’ tax codes was introduced:

Annual PAYE earnings
Coding out limits
Up to 29,999.99  3,000
30,000.00–39,999.99 5,000
40,000.00–49,999.99 7,000
90,000.00 and above 17,000

The legislation can be found in s684, ITEPA 2003 and in reg 14, Income Tax (Pay As You Earn) Regulations 2003, SI 2003/2682. The issue is covered in HMRC Debt Management and Banking Manual 618000.

The change to in-year recovery does not require any change to the regulations but it is disappointing that there is to be no consultation; we have merely a brief reference in the Red Book and nothing in the HMRC Budget documents. It is asking a lot of the system of tax codes to take account of an increasing number of adjustments. The risk is that tax codes will become even more incomprehensible to taxpayers. Dynamic coding has not gone entirely smoothly so far, though this latest change is not to be introduced until April 2019 so there is still some time to discuss the practicalities. 

The legislative timetable

This is the first Budget in the new annual tax policy-making cycle, which was announced in the 2016 Autumn Statement. The timetable involved one annual fiscal event, the Autumn Budget, with a Finance Bill in the Autumn for legislating before the following April, and (at least in theory) consultation on new proposals over the course of a year. Further details on this new process will be published later this year.