A guide to the changes to penalties for late self-assessment tax returns and tax payments

What are the current penalties for late self-assessment returns and late tax payments?

Under current rules, the penalties for filing a self-assessment tax return late is as follows:

If the withholding of information after more than 12 months is deliberate or concealed, further penalties may be due.

For late payment of tax, the current rules are:

Why are penalties for late self-assessment returns and late tax payments changing?

The Government first announced reform of sanctions for late submission and late payment as part of the Spring 2021 Budget delivered by the then Chancellor Rishi Sunak. The change sees a move to a points-based system and the reforms start with VAT and Income Tax Self-Assessment (ITSA).

Outlining the changes, an HMRC spokesperson told TaxAssist: “We are reforming penalties to make them fairer, more effective and consistent across taxes with the focus on taxpayers who persistently miss filing and payment deadlines, rather than those who occasionally slip-up.”

When will penalties for late self-assessment returns and late tax payments change?

The new penalty system for late VAT returns and payments has already been introduced. For self-assessment, it will be introduced in April 2026.

It is linked to the phased introduction of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) which requires businesses, self-employed individuals, and landlords to keep digital records and use MTD-compatible software to submit updates to HMRC.

Businesses, self-employed individuals, and landlords with income over £50,000 will be mandated to join first from April 2026.

The rules will apply to those with income over £30,000 from April 2027.

For those with a lower income, a written statement to Parliament by Victoria Atkins, Financial Secretary to the Treasury, said: “The Government will now review the needs of smaller businesses, and particularly those under the £30,000 threshold. This will look in detail at whether and how the Making Tax Digitalfor Income Tax Sellf-Assessment service can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their Income Tax obligations.”

How will the new late submission penalties for self-assessment work?

Under the new system, a point will be received every time a self-assessment tax return submission deadline is missed. Once a certain threshold of points is reached, a £200 penalty will be charged. A further £200 penalty will be charged for every subsequent late submission, but the taxpayer’s points total will not increase.

The penalty thresholds will be as follows:

Submission frequency Penalty points threshold
Annual returns 2
Quarterly returns 4
Monthly returns 5

Once a penalty threshold has been reached, points will be reset to zero if all returns are submitted on time during what HMRC describes as a “period of compliance”.

The periods of compliance are as follows:

Submission frequency Period of compliance
Annual  24 months
Quarterly 12 months
Monthly 6 months

There are more details in a Government policy paper here.

How will the new late payment penalties for self-assessment work?

The new system involves a first penalty followed by a second penalty if the payment remains overdue.

A penalty will not be charged if the outstanding tax is paid within the first 15 days after the due date. The first penalty is charged if the payment is overdue by 16 or more days. The second penalty is charged when a payment is 31 or more days overdue.

For the first penalty, the amount is 2% of the tax due after day 15. The second penalty is 2% of the tax outstanding after day 15 plus 2% of the tax outstanding at day 30.

There are more details in a Government policy paper here.

The benefits of submitting your self-assessment tax return early

To avoid penalties, you need to file your tax return and pay your taxes on time.

While you can file up to 11.59pm on deadline day, there are many benefits to filing early. They include:

For more details on the benefits of having your tax return filed early, read this guide.

How TaxAssist Accountants can help

We can help you complete your tax return early, so you know how much tax needs to be paid and by when.

If you are due a tax refund, it makes sense to receive it as soon as possible. We work with many self-employed individuals and business owners and we can help you too.

If you need help with your self-assessment affairs, call us today on 020 7590 3162 or drop us a line using our online enquiry form.

Last updated: 20th March 2024