HMRC discloses full details of new points-based penalty model

HM Revenue & Customs (HMRC) has unveiled its full plans for replacing the existing late filing penalty system with a points-based penalty model, designed to focus firmly on “people who really don’t care about playing by the rules”.

Draft legislation is expected to be formally published next summer, as HMRC prepares to design a late submission penalty system fit for Making Tax Digital (MTD) in the 21st Century.

Earlier this year, HMRC consulted on three potential penalty models, looking at the suspension of penalties altogether, points-based systems and regular reviews of taxpayer compliance.

Following the consultation period, it was revealed that most respondents preferred the points-based model, due in no small part to its apparent simplicity.

New late filing penalty points threshold

Under the new points-based model, self-assessment taxpayers will be given a penalty points each time they miss a submission deadline. After an individual reaches their penalty threshold, only then will they receive a financial penalty, which has yet to be determined by HMRC.

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

*The number of points at which a penalty will be charged

The new system is also expected to ‘reset’ an individual’s penalty points to zero following a sufficient period of good compliance. Self-assessment taxpayers must submit two successive annual returns ahead of their deadlines to reset their penalty points. Those who submit returns quarterly and monthly must submit four and six successive returns on time respectively to reset their penalty points.


Need help completing your tax return? Book an appointment with your local TaxAssist Accountant today on 0800 0523 555 or contact us online here.

John Cullinane, Tax Policy Director, at the Chartered Institute of Taxation (CIoT), said of the new model: “The original proposals with their lack of a shelf-life for points would likely have been ineffective as well as unfair because there would have been little incentive to improve one’s behaviour if points stuck with you for too long regardless of your ongoing compliance.

“HMRC’s communications in educating taxpayers about MTD and their new compliance obligations, as well as the quality of its digital systems, will be critical to the smooth operation of the regime.”

The first returns for which the new penalty points model will be utilised is expected to be for VAT reporting as part of MTD. From April 2019, it will be mandatory for all VAT registered businesses with a turnover of £85,000 or more to submit digital VAT returns. A ‘soft landing period’ will commence from April 2019, with the new points-based system commencing from 2020.

Your local TaxAssist Accountant can work with you to prepare your business for Making Tax Digital. As small business owners ourselves, we fully understand what is required to manage your business records digitally.

If you would like us to help you through these changes then please don’t hesitate to arrange a free initial consultation with your nearest TaxAssist Accountant. You can call us today on 0800 0523 555 or drop us a line using our online enquiry form.

By Jo Nockels FCCA
Last updated December 2017

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