The New HMRC Penalty System For Late Submissions – All You Need To Know

HMRC have recently announced a new penalty system for late submissions. The new system was designed to allow some leeway for those who occasionally miss deadlines due to mitigating circumstances, whilst being a lot tougher on those who consistently file late submissions.

The penalties will be in the form of a points-based system rather than the automatic fine, also known as a single default surcharge which is a certain percentage of the VAT due on the return, that was previously in place. This means that those who consistently miss deadlines will gain more points over time and will in turn pay a larger fine than what’s in force currently. Everyone will have a penalty threshold based on how often you make your submissions.

As well as this, instead of a deadline date provided by HMRC to file VAT payments, there will be a two-week window to pay on time. After this point, penalties will be applied in increasing amounts as follows:

  • 2 per cent penalty of money owed if the late payment is made between 16 and 30 days after the due date.
  • 4 per cent penalty of money owed if payment has not been made after 30 days.
  • A second penalty of an additional 4 per cent per year, calculated on a daily basis of total money owing will be incurred from day 31.

Here’s all you need to know on the new HMRC penalty system:

What Is The New HMRC Penalty System & Who Does It Affect?

The New HMRC penalty system aims to punish repeat offenders and be more lenient towards those who make the odd mistake when filing their submissions and payments. The reforms come into effect:

  • for VAT taxpayers from periods starting on or after 1st April 2022.
  • for taxpayers in Income Tax Self-Assessment (ITSA), from accounting periods beginning on or after 6th April 2023 for taxpayers with business or property income over £10,000 per year (that is, taxpayers who are required to submit digital quarterly updates through Making Tax Digital for ITSA).
  • for all other ITSA taxpayers, from accounting periods beginning on or after 6th April 2024.

The separate points threshold is based on the frequency of tax returns. If a late submission happens then one point is accrued, whilst failure to meet one obligation but submitting on time for others will only accrue one point relating to the late or missed submission.

Here is the breakdown of the point thresholds:

  • Annual Submissions – 2 Points
  • Quarterly (For example VAT Payments) – 4 Points
  • Monthly – 5 Points

Once a penalty fine has been issued and a continuation of further missed payments/submissions occur then this will result in further penalties. The Penalty points will expire after two years, providing the points on the account remain under the point threshold and current submission deadlines have been met.

If the threshold has been met, points will only be reset once all deadlines have been met depending on the frequency of your payments/submissions:

  • Annually – 2 Years
  • Quarterly – 1 Year
  • Monthly – 6 Months

A taxpayer will be able to challenge a point or penalty through both an internal HMRC review process and an appeal to the courts (the First Tier Tax Tribunal). The grounds for an appeal will include the grounds that the taxpayer had a reasonable excuse for missing a filing deadline. The appeal process will be the same as the appeal process against an assessment of tax for the relevant tax on which the penalty is based.

Why Have The Government Introduced The New Penalty System?

As stated, the government chosen to overhaul the penalty system to allow for leniency of honest mistakes, whilst simultaneously clamping down harder on serial late payers. This will provide an incentive for people to improve their systems and processes without incurring a hefty penalty. It will also provide some much-needed consistency across the board for HMRC when handing out fines for late payments.

Nordens’ VAT Manager, Maria Mousoullou, says, “A question that everyone wants to find out the answer to is, would the new HMRC penalty system make taxpayers submit and pay their returns on time? The new system can lead both ways, either it gets businesses more organised and keeps them up to date with their affairs or it gives them the encouragement to be a repeat offender with the consequences fairly small. Would it also be a fair system? It could be, the penalty points can be compared as if you are playing football and the yellow cards are your warnings so each time you are late you are closer to a hefty fine. Allowing the occasional delay can be seen as an incentive for businesses to test the waters but it also could be a stress reliever when the unexpected happens. This will be a big change and quite tricky to be explained so it looks like another way for HMRC to effectively educate taxpayers to be consistent with submissions and payments, rather than having to understand the changes overall.”

How To Comply With The New Penalty System? 

In order to comply with HMRC’s new penalty system in relation to late payments and submissions, you will need to file and submit in the specified time set out by HMRC (with a 14-day window in place from the date set). Once this is exceeded, then points will accrue which if left unattended to will result in fines.

A full breakdown of the new system for agents and advisors can be found here, whilst the policy paper of the system can be found here.


We hope this has outlined to you exactly what the new HMRC penalty system for late submissions is. If you require any more information on any HMRC measures, or anything tax or accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.

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