The tax late submission penalties system explained

Did you know that a while back, HMRC introduced a tax late submission penalties system? The system is points based. Each time you miss a submission deadline you’ll receive a point. When you reach a certain number of points, you’ll have to pay a penalty.

But which taxes does it affect? And what does it mean for you? We take a look.

What was changed about late submission penalties?

Under the old system, if you missed a submission deadline, you got slapped with an automatic penalty. This penalised people who made genuine mistakes, or who had good reasons for missing a submission.

To make the system fairer, HMRC designed a new points-based system to penalise those who regularly miss submission deadlines.

Which taxes does the system apply to? 

The points-based system applies to Income Tax and VAT.

The changes apply to VAT customers for accounting periods beginning on or after 1 January 2023, to ITSA customers with business or property income over £50,000 per year (who are mandated for Making Tax Digital (MTD) for ITSA) from the tax year beginning 6 April 2026, and for ITSA customers with income of £30,000 from the tax year beginning 6 April 2027.

The regime applies to people who have regular submission obligations for VAT or ITSA (e.g. every month, quarter or year).

How do the tax late submission penalties work?

In a nutshell, if you miss a deadline, you get a penalty point. Once you reach a particular number of points, you get a penalty of £200. The points threshold depends on how frequently you have to make a submission and is detailed below:

• Annual submission: 2 points
• Quarterly submission: 4 points
• Monthly submission: 5 points

Once you’ve hit the maximum number of points, they won’t increase further. However, you’ll have to pay the penalty – and pay it for every subsequent missed deadline.

That said, if you are not at the penalty threshold, points expire after 2 years, calculated from the month following the month in which you miss a deadline.

If you are at the penalty threshold, your points will be reset only when you’ve met two conditions. The first condition is a period of compliance, detailed as followed.

• Annual submission: 24 months’ compliance
• Quarterly submission: 12 months’ compliance
• Monthly submission: 6 months’ compliance

The second condition is that you must have submitted all submissions due within the previous 24 months.

Are penalty points automatic?

Normally, penalty points will be automatic. However, HMRC does have the discretion not to apply a point if it deems it appropriate. There are also time limits, after which HMRC cannot apply a penalty point if it has not already done so. These limits are:

• Annual submission: 48 weeks
• Quarterly submission: 11 weeks
• Monthly submission: 2 weeks

Do points count towards both VAT and ITSA?

If you pay both VAT and ITSA, you have separate points totals for each tax. A point gained for late submission of VAT, for example, can’t count towards a penalty for ITSA.

What about late payments?

The rules on late payments are changing too. Essentially, the late payments system is as follows:

• No penalty if you pay within 15 days of the due date
• 2% of the outstanding amount if you pay between 16 and 30 days after the due date
• If any tax is left unpaid after 30 days, you pay 2% of the outstanding amount at day 15 plus 2% of the amount at day 30. This normally equates to a charge of 4%.
• A second penalty is charged at 4% per annum, calculated on a daily basis on the total unpaid tax on day 31.

Where can I learn more about tax late submission penalties?

You can find full details on the Gov.uk website, but please feel free to speak to your account manager if you have any questions.