Kay Brookes, Partner at Bates Weston reviews HMRC’s plans to reform penalties for late submissions to HMRC.

At the Budget in March 2021, HMRC signalled their intention to reform the sanctions for late submission and late payment of VAT and Income Tax Self-Assessment (ITSA). The provisions were contained in The Finance Act 2021.

Instead of receiving an automatic financial penalty for missing a submission deadline, points will be incurred. Financial penalties will be levied when points exceed a specified total. The idea is to penalise those who repeatedly miss submission deadlines, rather than those who make occasional mistakes.

Taxpayers will receive a point each time they miss a submission deadline. HMRC will notify them that a point has been incurred. A £200 financial penalty is charged when threshold point is reached.

The threshold points vary according to the frequency of required submissions and there are separate points totals for each submission obligation the taxpayer has. Points will expire after 2 years, except where a penalty threshold has been reached. In that case, the taxpayer must submit all submissions that had been due within the preceding 24 months and demonstrate a further period of compliance from between 6 and 24 months, dependent on the frequency of the submissions. When both conditions are met the points expire.

Submission Frequency Penalty Threshold
Annual 2 points
Quarterly (Including MTD for ITSA) 4 points
Monthly 5 points

The change to this points-based system will be effective as follows:

  • for VAT – accounting periods beginning on or after 1 April 2022
  • for MTD for ITSA – those with business or property income in excess of £10,000 per year, submitting quarterly updates for accounting periods on or after 6 April 2023
  • for all other ITSA – those with accounting periods beginning on or after 6 April 2024

More information is available here, and we are expecting further technical guidance from HMRC in the near future. We will provide updates when we know more.

Kay Brookes comments:

“The Making Tax Digital initiative is designed to modernise the UK’s tax system. HMRC is clearly trying to encourage taxpayers to adopt the online submissions without penalising them too harshly if submission deadlines are missed in the early stages of adoption. The points-based system gives taxpayers a chance to get to grips with their compliance requirements without incurring automatic penalties, with only persistent noncompliance attracting penalties.”

If you need help in understanding your obligations under Making Tax Digital for VAT or for Income Tax Self-Assessment (ITSA), please do get in touch with us.