Tax late penalty regime

24th August 2021

In readiness for Making Tax Digital (MTD), commencing 6 April 2024, HM Revenue & Customs (HMRC) have confirmed that a new points-based penalty regime will be introduced for late quarterly MTD submissions/annual tax returns along with revised penalties for the late payment of tax. The new penalty regime will align the rules for VAT with Income Tax.

These new systems will come into effect as follows:

  • 1 April 2023: for VAT registered taxpayers
  • 6 April 2024: for Income Tax payers with business/property income, or a combination of both, in excess of £10,000 per year. This means they will be required to submit quarterly submissions through MTD.
  • 6 April 2025: for all other Income Tax payers who don’t meet the MTD filing requirements but continue to file a Self Assessment tax return

Late submission

The new system has been introduced to enforce larger penalties to those who consistently miss deadlines.

Under the current system, individuals receive a flat £100 late filing penalty should a deadline be missed with further penalties accruing should the return remain outstanding after 3, 6 and 12 months.

Going forward, a new points-based system will be introduced where on the late submission of a quarterly MTD submission/tax return taxpayers will incur a penalty point. The more deadlines missed, the more points incurred until the penalty threshold is exceeded. The penalty threshold is dependent on how often you submit a quarterly MTD submission/annual tax return as summarised below:

  • Quarterly MTD submission: four points
  • Annual tax return: two points

Once you have exceeded the threshold, an automatic £200 late filing penalty will be incurred. For every deadline missed whilst over the threshold a further £200 penalty will be issued.

Once a taxpayer has met their quarterly MTD submission/annual tax return obligations for a certain period of time, previous penalty points incurred will expire. The penalty points will expire for taxpayers within the quarterly MTD submissions and Self Assessment tax return system once all deadlines have been met for 12 and 24 months, respectively.

HMRC have confirmed that taxpayers can continue to appeal against penalties should they have a reasonable excuse.

Late payment

Along with the introduction of the new late submission regime, HMRC will be introducing a new penalty system for late payments. Under the new system the taxpayer will not incur a penalty if all tax is settled within 15 days of the due date.

If after 15 days any tax remains outstanding, the first late payment penalty charge will be due at 2% of the outstanding amount and will become payable 30 days from the original due date. If any tax remains outstanding 31 days after the initial due date, an additional penalty will be due on the outstanding amount, accruing on a daily basis at a rate of 4% per annum. Please note if taxpayers have agreed Time to Pay Arrangements with HMRC then late payment penalties will not accrue.

Finally, HMRC have confirmed that late payment interest will continue to accrue daily based on their official rate of interest, currently 3.0%.

For more details about the tax late penalty regime, please contact Alfie O’Dell or your usual haysmacintyre contact.

Alfie O’Dell

Assistant Manager
+44 20 7396 4396
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