Points system for late payers of tax

By Vanessa Sanders

New rules are being introduced for late filing and late payment penalties for income tax self-assessment.

It will apply with effect from 6 April 2023 for taxpayers within the Making Tax Digital regime – those with business or property turnover of more than £10,000 per year – and 6 April 2024 for other self-assessment taxpayers. 

Late filing or submission penalties

A points-based system is being introduced, meaning each time a taxpayer misses a submission deadline, they incur a point. 

The taxpayer becomes liable to a fixed penalty of £200 upon reaching the points threshold. 

The threshold depends on the submission frequency: annual accrual = two points; quarterly = four points; and monthly = five points. 

The points incurred will expire after 24 months, providing the taxpayer remains below the threshold. 

Once the threshold is reached, all points will expire if the taxpayer meets their return obligations for a set period. 

This period is based on their submission frequency: annually, 24 months; quarterly, 12 months; monthly, six months.

If the taxpayer continues to miss deadlines after they reach the points threshold and has been issued with a penalty, they will become liable for further fixed-rate penalties as additional obligations are missed. 

But a taxpayer will not be liable if a reasonable excuse for not submitting on time is provided, and there is a right of appeal against both points and penalties.

Late payment penalties

There will be no penalty for tax paid late but within 15 days of the due date. 

The first penalty thereafter is set at 2% of the outstanding amount if payment is made between 16 and 30 days after the due date.

This rises to 4% of the outstanding amount if tax is left outstanding 30 days after the due date. A second penalty is charged at 4% a year, calculated on a daily basis on the total amount outstanding after day 30.

To avoid or reduce penalties, the taxpayer can approach HM Revenue and Customs (HMRC) to agree a Time to Pay Arrangement. The approach is likely to have to be made in person and usually involves discussion of affordability. 

But our experience shows that HMRC has little sympathy for what it may consider to be extravagant lifestyle choices, such as private school fees, expensive vehicle lease payments and an unwillingness to cash in ISAs

Vanessa Sanders (right) is a partner with accountancy, finance and tax advisory medical specialists, Stanbridge Associates Ltd