New HMRC Penalty Regime

HMRC have set out the new penalty regime for the late submission of tax returns and the late payment of tax for VAT periods beginning on or after 1 April 2022 and for self-assessment periods commencing on or after 6 April 2023.

The new system is designed to be more lenient on individuals who make an occasional mistake, whilst penalising persistent offenders more heavily.

The new late filing penalty regime has been likened to the driving licence points system whereby you will receive a point for missing a filing deadline. Any points received will remain on your record for a period of 24 months and financial penalties will not be issued until you reach the relevant points threshold.

For example, the points threshold for personal tax return submissions is 2 points, being an annual filing requirement. So under the new system one late submission will accrue a point but no financial penalty. If subsequent filing deadlines are met over the following 24 months the point will be removed. However, if a further filing deadline is missed during the 24 month period following the point being issued, the 2 point threshold will have been reached and a late filing penalty of £200 will be issued for this and any subsequent missed deadlines. No further points will be received where financial penalties are issued for late submissions.

The relevant points thresholds for other reporting is 4 points for quarterly reporting and 5 points for monthly reporting.

Once the relevant points threshold has been reached points will not automatically be removed after 24 months, instead there will need to be a period of compliance, where all obligations are met on time. In addition all submissions for the previous 24 months also need to be complete (even if late) before the points are reset. The length of the period of compliance depends upon the filing frequency in question and is 24 months for annual self-assessment, 12 months for quarterly reporting and 6 months for monthly reporting under Making Tax Digital.

The late payment of tax regime has also been redesigned and consists of two charges, the first being a percentage of the unpaid tax and the second a daily interest charge thereafter.

In respect of the late payment penalty the size of this depends upon how late the payment is made as follows:

  • No penalty if the tax is paid within 15 days of the due date
  • 2% penalty of the outstanding tax if it is settled between 16 days and 30 days after the due date
  • The penalty increases to 4% if tax remains unpaid after 30 days following the due date

In addition to the above penalty, from day 31 after the due date a 4% per annum charge is levied on any outstanding balances from day 31, calculated daily, and is charged until the tax has been settled in full. If you are having difficulties paying your tax liability it is advisable to contact HMRC and request a time to pay arrangement in order to mitigate penalties.

As with the existing system there is the ability to challenge a point or penalty on the basis of having a reasonable excuse both via the HMRC internal review and appeal process or the First Tier Tribunal.

For further information or help dealing with your tax obligations contact the team at Wells.