New penalty for late returns

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Taxpayers will no longer receive an automatic penalty if they fail to submit their returns.

Instead a new points based system will be introduced, designed to be ‘proportionate, penalising only the small minority who persistently miss their submission obligations rather than those who make occasional mistakes’.

The new regime will apply

  • for VAT taxpayers from periods starting on or after April 1, 2022
  • for taxpayers within MTD for Income Tax Self-Assessment (ITSA), from the tax year beginning April 6, 2024
  • for all other ITSA taxpayers, from the tax year beginning April 6, 2025

Taxpayers will receive a point every time they miss a deadline, when a certain amount of points have been received a penalty of £200 will be charged.

Submission frequency Penalty threshold
Annual 2 points 
Quarterly (including MTD for ITSA) 4 points
Monthly 5 points

 

“Points will be issued for each missed submission,” said Melanie Tomkins, tax manager at Ellis & Co Chartered Accountants and Business Advisers.

“If a taxpayer must submit a number of returns, points will be issued for each return that misses the deadline.

“However,if a taxpayer makes two or more failures relating to the same submission obligation in the same month, they will only incur a single point for that month.

HMRC, said there are exceptions to this rule, with the maximum of one point per month for two or more failures relating to the same submission obligation in the same month will not apply across different MTD for ITSA submission obligations.

Points will expire after two years, this will be calculated from the month after the month in which the failure occurred.

Points will not expire when a taxpayer is at the penalty threshold, this ensures they must ‘achieve a period of compliance to reset their points’.

Points accrued within will be reset to zero when the taxpayer has:

  1. A period of compliance (that is, meeting all submission obligations on time for the period of compliance – see table below); and
  2. The taxpayer has submitted all the submissions which were due within the preceding 24 months. It does not matter whether or not these submissions were initially late.

The periods of compliance are:

Submission frequency Period of compliance
Annual 24 months
Quarterly (including MTD for ITSA 12 month
Monthly 6 months

 

For further information on this or any other tax matter please contact Melanie on 01244 343504.  

Ellis & Co Chartered Accountants and Business Advisers, Chester & Wrexham - 01244 343504, info@ellis-uk.com