Are you a VAT customer or a Self-Assessment taxpayer? You need to be informed of the changes being made to the HMRC new late submission points system. Below we explore how it could apply to you. 

Changes are being made. This is to become more lenient regarding those who make a one-time mistake. It will penalise those who repeatedly miss returns. To ensure this, penalties will be point-based rather than immediate in effect. This means those who consistently miss deadlines will accrue more points. Ultimately they will pay a larger fine than the one currently in force. 

How will this system come into effect and how will it affect you as a taxpayer?

The new system means you will receive a penalty point rather than an immediate fine after a missed payment. These points will accrue with every missed deadline until you hit a penalty threshold. After which, you will receive a £200 fine, and another £200 for every missed deadline and so on. 

This penalty threshold will depend on how often you make payments. If you are an annual taxpayer your penalty will be set at two points. Should you pay quarterly, your threshold is set at 4 points. If you pay monthly, your threshold will be set at 5 points. 

Thresholds do vary for each obligation you have, and each obligation is treated separately. So, if you fail to meet one payment obligation you won’t be penalised on other tax obligations you may have. If you fail to meet multiple obligations, points will accrue for each. This results in heavy fines if you continually miss all your deadlines. 

However, the HMRC do wish to give taxpayers a chance to improve without gaining too many points. As a result, if you make two late payments within the same month relating to the same obligation, you will still only receive one point. There remains one exception to this regarding the Self-Assessment obligations through Making Tax Digital starting in 2023. For example, if you have a quarterly Self-Assessment deadline and an annual return due in the same month, you will get two points if you miss both.

When will the new late submission points system start and when will it affect you?

  • 1st April 2022 for VAT customers
  • 6th April 2023 for Self-Assessment taxpayers with business or property income over £10,000 per year (who will need to send digital quarterly updates through Making Tax Digital)
  • 6th April 2024 for all other Self-Assessment taxpayers

Any points you accrue will last for two years, as long as you hit subsequent deadlines and don’t reach the penalty threshold.

If you do reach that threshold, your points will only reset when you have hit all deadlines for a particular time-period:

  • Two years for annual submissions
  • Twelve months for quarterly submissions
  • Six months for monthly submissions

Everything that has been due over the previous two years also needs to be submitted. 

What else should you know about HMRC’s new system?

The HMRC has a time limit to apply points (for example it cannot apply a point after 48 weeks from the day of a missed annual submission) and circumstances may affect whether HMRC decides whether or not to issue you a point. Similarly, if you feel you have a relevant or reasonable explanation, you may appeal a point that has been issued to you.

If you happen to change your submission frequency for a particular obligation, HMRC will simply adjust any points you may  have accordingly. If you have not accrued any points, you do not need to worry when altering your submission frequency. 

Non-standard accounting periods (for example at the beginning or end of a period of VAT liability) are not included in the new points system unless you make a deliberate failure to submit. 

As always, I am here to help if you have any questions about all things finance. Or if you are feeling confused about the new late submission points system, let’s talk. Get in touch with McCarthy Browne today for more guidance on this subject and paying taxes.