New ‘Penalty Points’ System Proposed by HMRC

August 2016

HMRC has plans for a ‘penalty points’ system. Under these new plans, self-assessment tax return filers could face fines of up to triple the current maximum.

The Government proposals were unveiled this week and if they come to fruition, it would mean the current £100 fine you currently get for missing the self-assessment deadline will be scrapped. Instead, it will be replaced with a points system where each failure to send financial information on time will accrue points. The points will then trigger automatic fines when a high number is racked up.

According to the latest Government proposals, the new system would also mean taxpayers will have to file updates to their tax returns every three months, though those earning under £10,000 a year will be exempt.

There are two key proposals relating to fines and penalties – one for failing to send HMRC your financial information on time, and one for paying your tax late.

Penalties submitting information late

This refers to both the current end-of-year declarations and the planned new ‘quarterly updates’ which are submitted by logging into a HMRC digital tax account.

The Government proposed system is a system whereby you’ll receive penalty points for submitting information late. You would receive an automatic fine if you reach a certain level of penalty points, either by missing multiple reporting obligations or by being particularly late with one or more of them. Points will be reset back back to zero after two years, providing you submit all your information on time throughout that period.

Something important to note though, these fines apply only cases where the lateness is deemed to be ‘non-deliberate’ by HMRC. HMRC’s definition of ‘non-deliberate’ isn’t exactly crystal clear, but essentially if you can prove you weren’t actively trying to avoid your tax obligations, the fines will not apply to you.

In some ways the system would represent a more relaxed approach, giving those who are unintentionally late a few chances to mend their ways before being fined, rather than the current automatic £100 fine.

Penalties for late payments

This proposal relates to the late payment of income tax, class 4 national Insurance contributions, corporation tax and VAT.

The penalties for late payments is a little less straightforward – the consultation puts forward two competing models with different timescales and fines. The biggest fine mooted outlined in one model is 15% of the outstanding bill, which would be changed if you were 12 months late in paying. Under this model you would first be charged a 4% fine for being 30 days late, and a 10% fine if you were six months late. You would be hit with a 15% fine if you were a year late.

Currently, the maximum fine for settling your tax bill 12 months late is 5% of the bill, so a 15% fine would be triple the current penalty.

Bear in mind though, this is just one of the two late payment penalty models mooted at this stage – the other suggests a 5% fine applied at 30 days, six months and 12 months after the tax was due. As of now, nobody knows exactly what the final system will look like.

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