On 19 June 2008, HMRC published two consultation documents which propose harmonisation of the rules relating to:

1. Penalties for late filing of tax returns and late payment of tax. (The consultation does not propose any changes to filing or payment dates.)

2. Interest on underpaid and overpaid tax.

Overall, the penalty proposals are a welcome move to align the rules in this area across all taxes, including NICs. However, the proposed changes would lead to a stricter regime for taxpayers in some circumstances including:

1. Increased and earlier use of tax-geared penalties for both late filing and late payment.

2. HMRC would be permitted to impose daily penalties for late filing without prior authorisation by a tribunal (but with a right of appeal or review for the taxpayer).

3. HMRC is considering requiring all employers to submit monthly PAYE returns and imposing interest or surcharge on late monthly payments of PAYE.

4. Higher penalties for persistent defaulters.

On interest, the key proposal is that interest would apply to all underpayments and overpayments of tax, including VAT and PAYE. HMRC favours retaining a differential between the rates of interest paid by and to HMRC.

Comments on both documents are requested by 11 September 2008.

Sources: HMRC: Meeting the obligations to file returns and pay tax on time and HMRC: Interest - working towards a harmonised regime.