skip to Main Content

Making tax digital for business – new points based system for penalties and interest

HMRC has announced that from April 2022, a new points-based penalty regime will be introduced to harmonise penalties and interest for taxpayers who fail to submit their VAT returns on time and pay the VAT due to HMRC. These changes will also apply to self-assessment taxpayers with business or property income over £10,000 per year – who are required to submit digital quarterly updates through Making Tax Digital for income tax self assessment (MTD for ITSA) for accounting periods beginning on or after 6 April 2023, and to all other ITSA taxpayers for accounting periods beginning on or after for 6 April 2024.

The current penalty system will cease to apply from those dates. Taxpayers will receive a point each time they miss a submission deadline for income tax self-assessment. A £200 penalty will be charged once a certain points threshold is reached. The threshold will depend on the taxpayer’s return submission frequency. Accrued points expire after 24 months where the taxpayer remains below the points threshold.

There would be no penalty for late payments within 15 days of the due date. Penalties will begin to be charged periodically thereafter based on the amount of tax outstanding. A 2% penalty will apply for late payments between 16 and 30 days, and 4% thereafter, on a daily basis. The penalty will stop accruing from the date a Time To Pay arrangement is agreed.

This is a substantial change to the existing regime and aligns the penalty and interest regime for VAT and Income Tax. It is important that you review your processes around compliance to avoid expensive penalties and interest charges. The existing MTDfV regime remains unchanged. However, from VAT periods starting on or after 1 April 2022, all remaining VAT registered businesses, including the self-employed and landlords, will be required to keep their VAT records digitally and provide their VAT return information to HMRC through MTD compatible software.

FEATURING: Lisa Macpherson
Lisa is the Head of Tax Technical at PKF Francis Clark, supporting the firm’s teams on tax policy and technical issues across its offices and… read more
Back To Top