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Start dates of new Late Payment Penalties Regime

Schedule 24 of Finance Act 2021 introduces a new points-based late payment penalties regime for the late submission of VAT and income tax self-assessment (ITSA) returns that are submitted regularly (monthly, quarterly and annually). The new regime will apply to periods starting 1 April 2022 for VAT and 6 April 2023 for income tax to coincide with the roll-out of MTD. For non MTD taxpayers submitting ITSA returns the start date will be 6 April 2024.

The new late payment penalty regime is set out in Schedule 26.

New Points Based System

 Each late submission of a return will result in a point (like motoring offences). When the taxpayer has amassed points equal to the points threshold (see table) a £200 penalty will be charged. Further late submissions will not result in additional penalty points but will result in additional penalties.

Filing frequency Point threshold
Monthly 5
Quarterly 4
Annual 2

 

The MTD for income tax returns will be considered quarterly returns for this purpose but the end of year MTD submissions are expected to be annual obligations.

For each taxpayer ITSA and VAT return obligations will have separate points totals. Where the taxpayer has multiple businesses subject to the same filing obligation they will receive a point for each return period for which a return is missed, regardless of how many of their businesses failed to file on time. Where returns are made by a partnership or LLP late filing penalties will not be deemed to be made by each partner/member but by the representative partner/member.

Like penalties for motoring offences points will expire after two years (3 years for motoring) provided the taxpayer hasn’t reached the penalty threshold. Where the taxpayer has reached the penalty threshold points will not expire after two years but will be retained until the taxpayer is fully compliant for a “period of compliance”:-

Submission frequency Period of compliance
Monthly 6 months
Quarterly 12 months
Annual 24 months

New Late Payment Penalties

As well as the new late filing penalty regime there will be a new system for charging penalties for late paid tax. This is set out in Schedule 26 of Finance Act 2021 and is expected to have the same start date as the late filing penalty regime. Where full payment is made no more than 15 days late there will be no penalty but a penalty of 2% of the outstanding tax is applied to the amount outstanding at day 15 with a further 2% penalty of the amount unpaid after 30 days late. A further 4% per annum charge is applied to the amount unpaid after 30 days. This is on top of the interest for late payment (currently 2.6% p.a.)

The late payment penalties can be suspended where the taxpayer has agreed a time to pay arrangement with HMRC, although will be reactivated if the agreement is breached.

There are also “reasonable exse” provisions in para 12 of Schedule 26.