HMRCs new penalty regime starts soon

HM Revenue & Customs (HMRC) is about to update and change its penalty regime – and these new penalties could affect your tax submissions as early as January 2023.

HMRC’s new penalty regime aims to rationalise the system for VAT and income tax, with the aim of improving consistency and targeting persistent offenders who deliver late returns. But what’s the impact likely to be for you and your business?

When does the new penalty regime begin?

The new penalty regime will have a staggered start, with the system coming into effect across three stages, based on the type of tax being paid.

Starting dates will be:

• 1 January 2023 for VAT taxpayers
• 6 April 2024 for MTD for Income Tax Self Assessment (MTD for ITSA) taxpayers
• 6 April 2025 for all other Income Tax Self-Assessment taxpayers.

If you’re VAT-registered, this means that the new points-based penalty system will kick in from January next year. So, it makes good sense to get up to date with the new rules.

How does the new penalty regime work?

The new penalty regime works around a points-based system for late submissions. Each late submission will earn you a penalty point and when a cumulative number of points are given, a fixed £200 penalty will be issued. The idea is to streamline the process, with instant penalties if taxpayers accrue the required tally of penalty points.

The thresholds are:

• Annual returns: 2 points
• Quarterly returns: 4 points
• Monthly returns: 5 points

All points expire 24 months after being given, provided that no penalties were triggered. If penalties were triggered, then they expire after a set period of compliance:

• Annually: 24 months
• Quarterly: 12 months
• Monthly: 6 months

Getting ready for the HMRC penalty regime

No-one wants to be landed with a £200 fine for hitting the points threshold. Getting up to speed with the new points-based system will help you avoid any hefty penalty fines and should also encourage a more proactive and timely approach to submitting returns and tax payments.

Other points to note include:

• VAT and Income Tax points will be treated separately.
• There will also be two late-payment penalties where any tax is overdue and no ‘time to pay’ (TTP) arrangement has been entered into.
• The first penalty will be 2% of the tax due where it’s either paid or a TTP arrangement is agreed between 16 and 30 days after the due date. If payment isn’t made and no TTP agreement is made by the 30th day, the penalty is 4% of the tax due.
• The second penalty accrues daily at a rate of 4% per annum on any tax unpaid after day 30 where no TTP is in place, and continues until the tax is paid or a TTP is agreed.
• If there are mitigating circumstances for your late submission, penalties can be appealed against. You should, however, maintain a schedule of all returns due.
• If you anticipate having difficulty paying tax as it becomes due, you should attempt to make a TTP arrangement as soon as you know the amount payable.

Helping you keep submissions on time

Where we submit your returns to HMRC, we’ll make sure you don’t miss any deadlines – and you’ll obviously avoid getting hit by any unexpected penalty points.

You’ll still need to pay any taxes due on time, of course. If you’re worried about paying the more unpredictable taxes – such as VAT, corporation tax and personal tax – talk to us about preparing a forecast so there are no surprise late-payment penalties.

Talk to us about your tax submission schedule.