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Glasgow
+44 (0)141 221 2984

Edinburgh
+44 (0)131 225 6366

Stirling
+44 (0)1786 451745

Dumbarton
+44 (0)1389 765238

Hamilton
+44 (0)1698 459444

French Duncan

Late filing penalties to use points-based system

HMRC has revealed plans for a new penalty system for late tax returns, in the draft Finance Bill 2018/19.

The proposed scheme is intended to reduce the number of penalty notices issued by introducing tolerance for one-off errors and would overhaul the fines charged by replacing escalating daily or tax-geared penalties. The new fixed penalties are, however, likely to be higher than current levels.

Under the new system, points are accumulated for errors over time, with penalties only to be applied where limits are breached. The proposed limits are:

•             two points for annual filings;

•             four for quarterly;

•             and five for monthly.

Points will expire after two years of good compliance. HMRC will continue to allow for reasonable excuses and allow for reviews of decisions to apply points or penalties.

The new system will be launched with personal tax self-assessment and VAT returns, including submissions made through Making Tax Digital, but will be extended to other duties – including corporation tax – in the near future. It will also only be applied to recurring filing requirements, rather than individual transactions, which maintain current penalty systems.

The plan is for the points-based system to provide leeway for those who make occasional genuine errors, in good faith, and reduce the number of penalty notices HMRC issues. With 745,000 self-assessment taxpayers missing the filing deadline in January 2018, some flexibility to the rules could reduce costs significantly for both taxpayers and HMRC.

Of course, this should not be taken as encouragement to miss filing deadlines. If you need any help preparing your tax return, please get in touch.