Driving License style penalty points for late filing of taxes by the self employed

HMRC will be scrapping their system of fixed penalties and replacing with a points system. It will apply to 12 million people who file annual tax returns and small businesses who file quarterly VAT returns. The system is intended to be more lenient on those who accidentally missed a date but harder on habitual offenders. It is also a money raising scheme with £400 million expected to be raised in 2025-26.

Currently a penalty of £100 is levied for the first 3 months rising by £10 per day up to £900. Further penalties of £300 or 5% apply after that.

The new system will issue a point for missing each deadline with £200 payable after the second point is levied. Further deadlines missed will result in a 4% (of tax owed) charge. For quarterly returns, fines will kick in at 4 points. The system will be applied to VAT returns starting in April next year and for annual tax returns from April 2023.

If a payment plan is agreed with the Revenue 15 days before the return is due then no penalty will apply. Points will be reset back to zero after two years of good behavior.

About late payment of tax as opposed to late filing, at present this can give rise to a 5% charge. Two replacement schemes are under consideration, one of which will levy a 15% surcharge if more than a year late.

In summary, the new scheme is more relaxed for those accidentally missing the first deadline as they won’t be subject to the present automatic £100 fine.

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