Self-assessments: new points-based penalty system to be introduced by HM Revenue & Customs?


It looks like HM Revenue & Customs may be introducing some changes to late filing penalties based on proposals put forward for the Finance Bill 2018-19.

As the rules currently stand, an automatic £100 penalty is issued for failure to submit a self-assessment tax return on time. These penalties can increase significantly depending on how late the tax return is filed as set out below.

Length of delay and the penalty you will have to pay
1 day late :  A penalty of £100. This applies even if you have no tax to pay or have paid the tax you owe.
3 months late.
£10 for each following day – up to a 90 day maximum of £900. This is as well as the fixed penalty above.

6 months late:  £300 or 5% of the tax due, whichever is the higher. This is as well as the penalties above.

12 months late:  £300 or 5% of the tax due, whichever is the higher.  In serious cases you may be asked to pay up to 100% of the tax due instead.  These are as well as the penalties above.

The new proposals are for a points-based system for late filing of self-assessment tax returns and other periodic tax returns to be introduced whereas a fixed financial penalty will only be charged if a specific number of points are accumulated over time because of defaults. At the time of writing, the new amounts for fixed rate penalties have not been announced but are likely to be set at a higher rate than the current penalties.

Initially, the new regime will only apply to self-assessment returns and VAT returns (including Making Tax Digital) but it is intended to extend the provisions to the other taxes and duties over time. Corporation tax is not currently included in the new regime, but it is the government’s intention to apply the new approach to corporation tax in the near future. The idea behind the new scheme is to avoid penalties for one-off mistakes and be tougher on the repeat offenders.

The points limit threshold will vary according to the nature of the return in question and the frequency of filing as stated below.

Submission frequency                             Penalty threshold
Annual                                                                2 points
Quarterly (including Making Tax Digital)      4 points
Monthly                                                              5 points

To avoid points simply accumulating over time there will be a two-year lifetime for points, after which they will expire and only fresh misconduct will result in points being awarded. If the taxpayer is at the penalty threshold then the points will not be automatically reset.

There must be a period of good compliance before the points can be removed. Good conduct means that returns must be filed on time and all relevant returns due within in the preceding 24 months’ returns have to have been submitted. Provisions will also be made for a change in the number of points required before a penalty can be imposed if the frequency of a return changes, such as a move from quarterly to monthly VAT returns. The idea is that a taxpayer and HMRC will neither be advantaged nor disadvantaged by the change that has occurred.


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