HMRC's New Penalty Regime: Are You Ready?

Did you know that HMRC’s penalty regime is about to change? Get ready for the new points-based scheme and avoid penalty fines.

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The HM Revenue & Customs (HMRC) penalty regime is designed to discourage late tax payment and overdue submissions. However, HMRC is planning to update and change this penalty regime to make it more consistent and better targeted at persistent offenders, particularly for VAT and income tax.

The new penalty regime will take effect from different dates depending on the tax type: 1 April 2023 for VAT, 6 April 2024 for MTD Income Tax taxpayers, and 6 April 2025 for all other Income Tax Self-Assessment taxpayers.

Under the new regime, a points-based system will be implemented for late submissions. Each late submission will accumulate penalty points, and when a specific number of points is reached, a fixed £200 penalty will be imposed on your business.

The thresholds for penalty points are as follows:

• Annual returns: 2 points

• Quarterly returns: 4 points

• Monthly returns: 5 points

Penalty points will expire after 24 months, provided that no penalties were triggered. However, if penalties were triggered, they will expire after a set compliance period:

• Annually: 24 months

• Quarterly: 12 months

• Monthly: 6 months

To avoid hefty penalty fines, it is crucial to familiarize yourself with the new rules and ensure timely submission of returns and tax payments. VAT and Income Tax points will be treated separately, and there will be two late-payment penalties if tax is overdue and no 'time to pay' (TTP) arrangement is in place.

The first penalty is 2% of the tax due if payment or a TTP arrangement is made between 16 and 30 days after the due date. If payment is not made and no TTP agreement is reached by the 30th day, the penalty increases to 4% of the tax due. The second penalty accrues daily at a rate of 4% per annum on any unpaid tax after day 30, without a TTP arrangement, until the tax is paid or a TTP is agreed.

It is important to keep a schedule of all returns due, even if unforeseen circumstances prevent timely submissions. Penalties can be appealed against in such mitigating circumstances. If you anticipate difficulty in paying tax as it becomes due, you should attempt to make a TTP arrangement as soon as possible.

If we are responsible for submitting your returns, we will closely monitor all due dates to ensure you meet the deadlines and avoid penalty points. If you have concerns about unpredictable taxes like VAT, corporation tax, and personal tax, we can help you prepare a forecast to avoid any surprises.

Get in touch to see if we can help you!