HM Revenue & Customs (HMRC) has unveiled its full plans for replacing the existing late filing penalty system with a points-based penalty model, designed to focus firmly on “people who really don’t care about playing by the rules”.
Draft legislation is expected to be formally published next summer, as HMRC prepares to design a late submission penalty system fit for Making Tax Digital (MTD) in the 21st Century.
Earlier this year, HMRC consulted on three potential penalty models, looking at the suspension of penalties altogether, points-based systems and regular reviews of taxpayer compliance.
Following the consultation period, it was revealed that most respondents preferred the points-based model, due in no small part to its apparent simplicity.
New late filing penalty points threshold
Under the new points-based model, self-assessment taxpayers will be given a penalty points each time they miss a submission deadline. After an individual reaches their penalty threshold, only then will they receive a financial penalty, which has yet to be determined by HMRC.
*The number of points at which a penalty will be charged
The new system is also expected to ‘reset’ an individual’s penalty points to zero following a sufficient period of good compliance. Self-assessment taxpayers must submit two successive annual returns ahead of their deadlines to reset their penalty points. Those who submit returns quarterly and monthly must submit four and six successive returns on time respectively to reset their penalty points.