Changes to late tax return penalties

HMRC are constantly reviewing their practices, and the latest change to this is the way they are penalising late submissions on VAT and Income Tax Self Assessment (ITSA).

To make late submission penalties fairer and more consistent across all taxes, HMRC have changed the way they issue penalties. Taxpayers will no longer receive an automatic financial penalty if they fail to meet a submission deadline.

Instead, they will incur a certain number of points for missed return deadlines before a financial penalty is issued. This new points-based system is designed to be proportionate, penalising only the small minority who persistently miss their submission obligations rather than those who make occasional mistakes.

How does the point system work?

Taxpayers will receive a point every time they miss a submission deadline. HMRC will notify them of each point, and once they have reached the penalty point threshold, they will need to pay £200 to HMRC. The thresholds are below:

Annual submission – 2 points
Quarterly submission – 4 points
Monthly submission – 5 points

Who does the changes affect?

The new penalty system will only affect you if you do not submit your returns on time. However, the penalty system is in place who fail to submit by the deadline, and who fit into the following criteria:

VAT customers for accounting periods beginning on or after 1 January 2023
ITSA customers who will be mandated for MTD for Income Tax from April 2026

The new penalty scheme will initially only apply to taxpayers who submit VAT and ITSA returns with a regular frequency (for example, monthly, quarterly or annually). A regular submission obligation can be a return or an MTD regular update. It will not apply to other occasional submissions (for example a submission required for a one-off transaction), which will continue to be covered by the current penalty scheme.

Special cases

There are special cases where these rules may differ for yourself. It is important to double check your own circumstances and how the changes can affect you. These situations may include:

If you are changing your frequency of reporting (from monthly, quarterly or annually).
If you are adding or removing a member from a VAT group.
If you have non-standard accounting periods.

To find out more about the latest changes to late submission penalties, and how it may affect you, click here.

Avoid any penalties from HMRC in the future by letting us help you. At Turas Accountants, we are committed to helping our clients stay on top of their accounts and submit returns within plenty of time.