TAKE CARE!: New penalty system coming into effect for UK Income Tax

FROM 2023, landlords, or self employed taxpayers in the UK, with annual income over £10,000 will be subject to filing their tax position through the Making Tax Digital initiative.

Through Making Tax Digital, taxpayers will not only submit one annual tax return, but also quarterly submissions of income and expenditure, to give a real time snapshot of their tax position throughout the year.

And with a change of process, also comes a change in the penalty system, With HMRC implementing a new points based penalty system to better align with the new tax system.

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Speaking in a recent seminar, HMRC spoke of creating a new system, aimed at being more supportive of those with genuine reasons behind mistakes or late filing, whilst still penalising those who are consistently late.

So how has the penalty system changed?

Well some could argue that it is more complicated! Currently the system goes by length of time since late submission, with the amount due increasing over the time period.

The new system accrues points per late submission – and points accrued mean penalties!

When a taxpayer misses a submission deadline then they will incur a point – these points build up to penalty thresholds, with each submission obligation (i.e quarterly, annually) having a different threshold. Once this point threshold is reached, then a fixed penalty amount of £200 will be issued for every missed submission.

The Penalty thresholds are as follows: 

Submission Frequency Penalty Threshold
Annual 2 Points
Quarterly 4 Points

If the penalty threshold isn’t passed, then the points will be cleared after two years. If the points threshold is passed, then all the points gained will be wiped only AFTER they have met a period of compliance as set by HMRC (Annual submissions 24 months, Quarterly submissions 12 months)  AND submitted all the submissions due from the previous two years.

For Late Payment, penalties are issued by length of time passed from the due date – however HMRC have said that they will take a ‘lighter’ approach for the first year of implementation, and a way of easing taxpayers into the system.

The basic structure surrounding penalties for late payment is:

Number of days late Penalty
0-15 No Penalty
16-29 2% of outstanding amount
30 4% of outstanding amount
31+ (2nd penalty only) 4% per day on outstanding amount

But don’t worry – This will not come into effect until 2023, and HMRC will be releasing more information in the lead up to the new system going live – to be the first to find out what’s new, join the APARI Community!

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