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HMRC’s New Penalty Regime

HMRC’s New Penalty Regime

Following the 2021 Budget, HMRC have announced reforms to the late filing penalty regime applicable to Self-Assessment tax returns. The new regime will be implemented for those with business or property income over £10,000 from 6th April 2023 and all other taxpayers, from 6th April 2024.

How will the new regime work?

Rather than the usual fixed financial penalty, each time a taxpayer misses a submission deadline, the individual will receive one point. Once the specified threshold is met, they will be charged with a fixed penalty of £200.

The thresholds are based on how often the taxpayer is obliged to make a submission. For annual income tax returns the threshold is 2 points.

When a taxpayer has reached the relevant threshold, a penalty of £200 will be charged for that failure and every subsequent failure to make a submission on time, but their total points will not increase.

The new system is considered to be a fairer way of levying penalties, designed to catch regular offenders rather than individuals who make a one off mistake.

Do the HMRC points expire?

Points will have a lifetime of two years, after which they will expire, unless the taxpayer has reached their penalty threshold. Once the threshold has been reached, the only way points can be reset to zero is when the taxpayer has met the following two conditions:

  1. A period of compliance (meeting all submission obligations for 2 years)
  2. All submissions due within the preceding 2 years have been submitted, regardless if originally late

Further details that will apply to more complex situations are yet to be announced and the system is still subject to change.