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July 5, 2021

Too Little, Too Late: HMRC introduces Points System for Late Submissions

In the upcoming years, taxpayers will not be issued with automatic penalties for the late filing of tax returns or the payment of tax. Instead, HMRC will issue "points" for missed deadlines, before a financial penalty is levied. It is intended that this new system will be fairer and only penalise those who persistently fail to meet their compliance obligations.

The changes will apply to VAT customers for accounting periods beginning on or after 1 April 2022, and to those who submit self-assessment tax returns with business or property income exceeding £10,000 p/a for accounting periods beginning on or after 6 April 2023, and to all other self-assessment taxpayers from 6 April 2024.

Current Rules (Self-Assessment)

Under the current rules for income tax, taxpayers who submit their self-assessment tax return after the 31 January deadline are subject to the following penalties:

  • An automatic late filing of £100
  • Three months late - Daily penalties of £10 are levied for up to 90 days (i.e. maximum penalty of £900)
  • Six months late - 5% of ta due or £300, if greater
  • 12 months late - 5% or £300 if greater, unless the taxpayer is deliberately withholding information

What's Changing?

Once the new rules are in force, taxpayers will instead receive a point each time they miss a deadline. Once a threshold of points has been reached, a penalty of £200 will be issued. The penalty threshold is determined by how often the taxpayer is required to make their submission and can be summarised below:

  • Annual submission - 2 points
  • Quarterly submissions including Making Tax Digital for Income Tax) - 4 points
  • Month submissions - 5 points

HMRC have confirmed that generally if a taxpayer makes two or more failures relating to the same submission in the same month, they will only incur a single point for that month, however some exceptions apply.

Points will have a lifetime of two years before they expire, however points will not expire when a taxpayer is at the penalty threshold; the points will only reset to zero when the taxpayer meets the following deadlines:

  • Annual submissions - 2 years
  • Quarterly submissions - 12 months
  • Monthly submissions - 6 months

HMRC will have discretionary power not to levy a point or charge a penalty if they consider it appropriate to do so, in light of that taxpayer's circumstances.

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