HMRC is changing its tax return penalty system. It’s aiming to punish repeat offenders and be more lenient towards those who make the odd mistake, reported Simply Business, the insurer. The Freelance Informer has covered the report’s highlights including when the points system starts, how the system works and how much you could end up paying in late fees.
The HMRC’s points-based penalty system will keep tabs on taxpayers that consistently miss deadlines. The more points accrued means the larger the fine. The fines will also be larger than those currently in force.
When does the HMRC late submission points system start?
The system start date depends on your tax obligations.
- 1 April 2022 for VAT customers
- 6 April 2023 for Self Assessment taxpayers with business or property income over £10,000 per year (who will need to send digital quarterly updates through Making Tax Digital)
- 6 April 2024 for all other Self Assessment taxpayers
How will HMRC penalties be determined?
Instead of getting an automatic fine if you miss a deadline, under the new system you’ll get a penalty point.
The more deadlines you miss, the more points you get, until you reach your penalty threshold. Then you get a £200 fine (and another £200 fine for every subsequent deadline you miss).
Your penalty threshold depends on how often you have to make a submission:
- annually – two points
- quarterly (e.g. VAT and Making Tax Digital for Self Assessment) – four points
- monthly – five points
There are separate points totals for each obligation you have. This means that if you fail to meet one obligation but successfully meet others, you’ll only accrue one set of points.
If you fail to meet multiple obligations, points will accrue for each – even if they have the same submission frequency. This could result in heavy fines if you consistently miss deadlines across all of your responsibilities.
If you make two late submissions relating to the same obligation in one month, you’ll still only get one point. HMRC says this is to give taxpayers a chance to improve without too many points accruing.
But there are some exceptions to this, relating to the Self Assessment obligations through Making Tax Digital starting in 2023, according to the Simply Business report. For example, if you have a quarterly Self Assessment deadline and an annual return due in the same month, you’ll get two points if you miss both.
When do HMRC late submission points expire?
Points will expire after two years, as long as you hit subsequent deadlines and don’t reach the penalty threshold.
But after you’ve reached that threshold, your points will only reset to zero when you’ve hit all of your deadlines for a particular time period:
- two years for annual submissions
- 12 months for quarterly submissions
- six months for monthly submissions
It’s important to note that you will have had to submit all that was due over the previous two years.
Other important facts about the HMRC penalty system
- HMRC has a time limit to apply points (for example it can’t apply a point after 48 weeks from the day of a missed annual submission)
- HMRC can decide not to issue points and penalties under particular circumstances
- You can appeal an HMRC point or penalty (as long as if you have a reasonable excuse)
- If you already have points and you change your submission frequency for a particular obligation (like VAT), HMRC will adjust your points total accordingly (but if you’re on zero you’ll stay at zero)
- Non-standard accounting periods (for example at the beginning or end of a period of VAT liability) aren’t included in the new points system unless you make a deliberate failure to submit
The HMRC has said that relevant information and guidance about the changes will be made available in “a less technical form for taxpayers” and those who represent them before they are introduced.
For more information, you can read:
- the Interest harmonisation and penalties for late payment and late submission tax information and impact note
- research on exploring communication needs of customers for the implementation of changes to Late Payment and Late Submission Penalties