Editor | 14 December 2017
HMRC outlines points-based late payment penalties

HMRC outlines points-based late payment penalties

At the start of December, HMRC announced plans to introduce a driving penalty style ‘points’ system to punish late-paying taxpayers.

The points-based system would be introduced as part of the shift towards ‘Making Tax Digital (MTD),’ which will see many taxpayers submitting tax returns more regularly.  

Now the tax authority has outlined their plans in more detail, suggesting that tax customers will receive a point every time they fail to submit on time.

HMRC will then charge taxpayers a penalty above a certain points threshold.

Any points given above a certain threshold will result in a charge for every subsequent failure to submit.

For taxpayers who submit one tax return a year, the penalty threshold is expected to be two points. For quarterly submitters, it would be four points and monthly submitter, five points.

Under the current system, self-assessment tax returns that are up to three months late receive an automatic fine of £100.

Fines can be bigger if submissions are later than three months or if you fail to pay what you owe on time.

As yet, there is no indication about what the penalty for late payments might be. But we expect it to be higher than £100, because annual taxpayers would have to miss two deadlines to be penalised. 

John Cullinane, Tax Policy Director at the Chartered Institute of Taxation (CIOT) welcomed more clarification on the policy, particularly a plan to remove penalty points after a certain time.

He said: “The original proposals with their lack of a shelf-life for points would likely have been ineffective as well as unfair because there would have been little incentive to improve one’s behaviour if points stuck with you for too long regardless of your ongoing compliance.”

Under the newly released plans, points will be removed after ‘periods of good compliance’.

For annual submitters, a period of good compliance would be two submissions. For quarterly submitters, it would be four and for monthly submitters, six.

Draft legislation for the new plans will be published in 2018 and CIOT anticipates that the points model will first be implemented in 2019 with the MTD initiative.

Speed up taxes with cloud-based accountancy platforms

Self-employed workers and other small business owners can protect themselves against the accumulation of points by using cloud-based bookkeeping platforms such as Xero and FreeAgent.

These systems speed up the self-assessment process because they make it easy to access information about your income and expenses.

Miles Grady, Director of Cloud Accountant said: “Under the Making Tax Digital proposals, taxpayers will be paying tax more frequently. Instead of muddling through invoices and receipts once a year as they may have done for many years, some taxpayers will be forced to submit a new return every quarter.

“This can be a blessing and a curse. You’ll be updating your taxes closer to ‘real-time’, but you’ll also be using up more time preparing taxes. Switching to a wholly-digital tax system before MTD starts will save you a lot of time and money.


“Online bookkeeping software like Xero and FreeAgent makes it easier to track income and expenses. It lets you store photographs of all your receipts in the cloud and can link up to HMRC’s system, enabling you to submit a new return in just a few clicks.”

For more information please visit www.cloudaccountant.co.uk or email team@cloudaccountant.co.uk