HMRC is aiming to crack down on consistent late filers and payers and will become fairer to those who miss their payment and filing deadline only occasionally. New penalties will be introduced for late tax return submissions.
From April 2022 HMRC new penalty system will be introduced for late VAT filings. For those who file their Income self-assessment from business and property income is over £10,000 per annum, the new system of penalty points will be introduced from April 2023. For other Income Tax Self-assessments, the new system will come into effect from APRIL 2024.
Under the current rules, a person or business who file their return will automatically receive a new filing surcharge as a percentage of the VAT due. First default is charged at 2% of the VAT due for payment, the second time you will be charged 5%, then 10% and up to a maximum of 15%. The fines can be substantial, although there is no accruing interest or increase of the penalty over time.
The HMRC new penalty system will work differently. There will be no penalties for missing the payment deadline within 2 weeks of the deadline.
More Details
Here are more details of how the HMRC new penalty system will work. If the filing is due within the first two weeks after the deadline, there will be no punishment. However, upon the end of this two weeks period, the penalty percentage will be increasing progressively:
2% penalty of money owed, if the payment is made between the 16th and 30th day after the deadline.
4% penalty of money owed if the payment is not made after the 30 days
A second penalty will be applied of 4% per year on the daily basis of the total money owed from day 31.
If the business is struggling to make the payments, they need to get in touch with HMRC to agree on Time to Pay Arrangement.
The following positions should be considered when looking at the new points penalty system.
Each type of submission accrues its own points threshold.
Annual submissions: two points threshold.
Quarterly submissions: three points threshold.
Monthly submissions: five-point threshold
Failure to file one return but meeting deadlines for others will only accrue one point.
Points accrue as you fail to meet the deadlines for a particular type of return.
Once you reach a threshold for a particular type of filing, a capped fine of £200 will apply.
Further missed submissions after the first penalty is issued will result in further fines.
Penalty points that have not reached the threshold will expire after 2 years.
If the threshold is meet for a specific type of filing, all points will only be reset once the deadline has been reset for a particular period of time. They are different for different types of returns: two years for annual submissions, twelve months for quarterly submissions, six months for monthly submissions. In addition, the taxpayer will need to file all the outstanding submissions for the previous 2 years.
Our experts say this system is becoming fairer. However, we do not believe that the system will change the behaviour of regular offenders. For those who struggle to file their returns in time, penalties are a regular cost. We believe that the new system will work better for those who fail to file by the deadline only occasionally.
Next step
We are advising businesses to become more organised and to speak to their accountants to check what system they have got in place. It is very important to understand the new system of penalties end points that accrue each time a deadline is missed.