HMRC’s new penalty regime

HMRC’s new penalty regime

What is the new penalty regime?

With the introduction of ‘Making Tax Digital’ for Self-Assessment Income Tax in April 2023, HMRC are bringing in a points-based penalty system for late payments for VAT and Self-Assessment. This new system is intended to be fairer for those who occasionally miss deadlines, but cracks down on those who are consistently late with payments and submissions.

VAT current regime

Late submissions and payments of VAT returns results in an automatic fine/Surcharge, which is a fixed percentage of the VAT you owe.

If your annual turnover is below £150,000

Defaults are reset as long as 12 months of consecutive of not late filing and payments.

If your annual turnover is above £150,000


Defaults are reset as long as 12 months of consecutive of not late filing and payments.

Self-assessment current regime

Late submissions

Late Payment

Interest will also be added to the late payment, at the HMRC rate.


Late payments

There will be no penalty for late payments made within two weeks of the tax being date, but penalties will be applied in increasing amounts after this cut-off point.

  • 2 per cent penalty of money owed if the late payment is made between 16 and 30 days after the due date.
  • 4 per cent penalty of money owed if payment has not been made after 30 days.
  • A second penalty of an additional 4 per cent per year, calculated on a daily basis of total money owing will be incurred from day 31.

If you are struggling to pay your tax you should approach HMRC directly to agree on a Time to Pay Arrangement.

Late submissions

Now this will where the new points systems comes in, each return made to HMRC has its own separate points threshold, depending it’s frequency.  Once the points threshold of a submission obligation has been reached, a capped fine of £200 will be payable.

Threshold are as follows:

  • Annual submissions: two-point threshold
  • Quarterly submissions: four-point threshold
  • Monthly submissions: five-point threshold.

For each late submission one point is accrued.  So for example if you have a quarterly VAT return the fifth late return would generate a £200 fine.  If you have monthly payroll the sixth late return would generate a fine.

Further missed submission deadlines after a penalty fine has been issued will result in further penalties.

Penalty points will expire after two years, providing the account remains under the point threshold and current submission deadlines have been met.

If the points threshold has been reached, points will only be reset once all deadlines have been met for a particular time period:

  • Two years for annual submissions
  • 12 months for quarterly submissions
  • Six months for monthly submissions.
  • In addition, taxpayers will need to submit everything outstanding over the previous two years.

When will the reforms come into effect?

The reforms come into effect:

  • For VAT from periods starting on or after 1 April 2022
  • Tax payers that are required to join the MTD for income tax self-assessment, from accounting periods beginning on or after 6 April 2023.
  • For all other income tax self-assessment, from accounting periods beginning on or after 6 April 2024

HMRC to adopt a soft-touch implementation

  • A soft-touch approach to the initial 2% late payment penalty for customers in the first year of operation of the new system under both VAT and income tax self-assessment.
  • In the first year, where a taxpayer is doing their best to comply, it will not assess the first penalty at 2% after 15 days, allowing taxpayers 30 days to approach HMRC before it charges a penalty.
  • However, if a taxpayer has not approached HMRC by the end of Day 30 and there is still an amount of tax outstanding, the first penalty will be charged according to 2% of the amount outstanding at Day 15 plus 2% of what is still outstanding at Day 30. In most instances this will amount to a 4% penalty.

There are no present plans to change the appeal process for the new regime.

Other Changes

The changes will see interest charges and repayment interest harmonised to bring VAT in line with other tax regimes, including ITSA.

If you have any questions about this, please contact us today.

Carrie Stokes Chartered Accountant

Carrie Stokes Chartered Accountant

I work with directors of limited companies in Shropshire, Staffordshire and the West Midlands giving them a clear and up to date financial picture of their business that they understand. Looking at the numbers, what they mean and how they can be improved to grow their business.

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