Did you know that HMRC is introducing a new tax late submission penalties system? The new system will be points based. Each time you miss a submission deadline you’ll receive a point. When you reach a certain number of points, you’ll have to pay a penalty.

But when will the new system come into force? Which taxes will it affect? And what will it mean for you? We take a look.

What’s the big change to late submission penalties?

Currently, if you miss a submission deadline, you get slapped with an automatic penalty. This penalises people who make genuine mistakes, or who have good reasons for missing a submission.

To make the system fairer, HMRC has designed a new points-based system that will penalise those who regularly miss submission deadlines.

Which taxes will the new system apply to? 

The new points-based system will apply to Income Tax and VAT. It will be introduced as follows:

  • VAT: for accounting periods beginning on or after 1st April 2022.
  • Income Tax Self Assessment (ITSA): for those with business or property income of £10,000+ (who are mandated for Making Tax Digital for ITSA) from the tax year beginning 6th April 2024.
  • ITSA: All other ITSA registered people from 6th April 2025.

The new regime will apply to people who have regular submission obligations for VAT or ITSA (e.g. every month, quarter or year).

How do the tax late submission penalties work?

In a nutshell, if you miss a deadline, you get a penalty point. Once you reach a particular number of points, you get a penalty of £200. The points threshold depends on how frequently you have to make a submission and is detailed below:

  • Annual submission: 2 points
  • Quarterly submission: 4 points
  • Monthly submission: 5 points

Once you’ve hit the maximum number of points, they won’t increase further. However, you’ll have to pay the penalty – and pay it for every subsequent missed deadline.

That said, if you are not at the penalty threshold, points expire after 2 years, calculated from the month following the month in which you miss a deadline.

If you are at the penalty threshold, your points will be reset only when you’ve met two conditions. The first condition is a period of compliance, detailed as followed.

  • Annual submission: 24 months’ compliance
  • Quarterly submission: 12 months’ compliance
  • Monthly submission: 6 months’ compliance

The second condition is that you must have submitted all submissions due within the previous 24 months.

Are penalty points automatic?

Normally, penalty points will be automatic. However, HMRC does have the discretion not to apply a point if it deems it appropriate. There are also time limits, after which HMRC cannot apply a penalty point if it has not already done so. These limits are:

  • Annual submission: 48 weeks
  • Quarterly submission: 11 weeks
  • Monthly submission: 2 weeks

Do points count towards both VAT and ITSA?

If you pay both VAT and ITSA, you have separate points totals for each tax. A point gained for late submission of VAT, for example, can’t count towards a penalty for ITSA.

What about late payments?

The rules on late payments are changing too. Essentially, the new late payments system is as follows:

  • No penalty if you pay within 15 days of the due date
  • 2% of the outstanding amount if you pay between 16 and 30 days after the due date
  • If any tax is left unpaid after 30 days, you pay 2% of the outstanding amount at day 15 plus 2% of the amount at day 30. This normally equates to a charge of 4%.
  • A second penalty is charged at 4% per annum, calculated on a daily basis on the total unpaid tax on day 31.

Where can I learn more about tax late submission penalties?

You can find full details on the Gov.uk website, but please feel free to speak to your account manager if you have any questions.

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About Karen Jones

Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.

With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.

Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”

Karen’s specialist skills:

  • Personal Taxation
  • Tax Efficient Planning
  • Trust Administration
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