New tax penalty scheme
HMRC has confirmed that their new points-based penalty scheme will come into effect from 1st April 2022. This will apply to all tax payers for VAT, Corporation Tax and Self-Assessment. The Inland Revenue say that this new system will be fair and effective but as history shows when it comes to the Inland Revenue their ambitions often fall short in actuality.
The new regime will apply to late submissions and late payments but will not apply to all sectors at the same time.
Start Dates:
For VAT, their first VAT return starting on or after 1st April 2022
For property owners and Self-Assessment 6th April 2023
For Self-Assessment taxpayers who are not in the Making Tax Digital 6th April 2024
The new system is designed to be more lenient for people who make the occasional slip-up but ensuring that people who deliberately avoid paying on time are fined.
When a taxpayer misses a deadline, they incur a point. Once a penalty threshold is met a fixed penalty notice of £200 will be issued for each missed submission until a period of compliance allows the points tally to be reset to zero.
All good so far, but this is where it starts to get complicated. Points accrue separately for VAT and Self-Assessment so, although the regime is the same, points tallies and periods of compliance will need to be monitored independently. The points thresholds, and length of compliance periods, also vary depending on the frequency of submissions, as follows:
Annual submissions (e.g., Self-Assessment returns and VAT annual accounting): 2 points and 24 months compliance to reset
Quarterly submissions (e.g., Quarterly self-assessment updates and most VAT returns): 4 points and 12 months
Monthly submissions (e.g., Monthly VAT returns): 5 points and 6 months
For the points to be reset to nil, as well as the necessary period of compliance that follows the last missed submission, all returns within the previous 24 months must be filed and up to date.
HMRC has confirmed that taxpayers can continue to appeal against penalties should they have a reasonable excuse.
Late payment penalties will be more proportionate to the length of time payment is outstanding and can result in the defaulting taxpayer receiving two penalties depending on when payment is made.
The first penalty will be levied 31 days after the due date and the second penalty will be calculated on amounts outstanding from day 31 until the principal balance is paid in full. HMRC will notify the taxpayer of both penalties independently.
The first penalty is a fixed percentage calculated by reference to the amount outstanding on Day 15 and Day 30. The second penalty is calculated at a daily rate until the liability is settled.