The Finance Bill 2018-19 contains proposals for a points based penalty system for the submission of late tax returns, including those made under Making Tax Digital. It’s currently thought that the new rules will become effective from April 2019, and will operate in much the same way that points are added to your driving licence for committing road traffic offences.

In the future, the plan is that, very broadly, a financial penalty will only be raised if a certain number of points are incurred over a fixed period. Points will be awarded if returns are submitted late, but each type of return will have its own point total.

While the amount of those monetary penalties has yet to be confirmed, the other aspects of the suggested scheme have been outlined. Initially, these new arrangements will apply to VAT and self-assessment returns, with the plan being to extend the scheme across all types of regular returns, regardless of their frequency or the nature of the tax involved. HMRC have advised that the new rules will not apply to one-off returns and that existing rules will continue to apply in those cases.

The main purpose of this new arrangement is to avoid penalties being issued for genuine one-off errors. Points will accumulate over time, and a financial penalty will only be triggered once a fixed limit has been breached. These thresholds depend on the frequency of the return that is late i.e. the threshold for annual returns is two points, quarterly is four and monthly, five. There will also be a facility for the thresholds to be amended up or down as required if, for example, submission frequencies alter, so that taxpayers are not unfairly disadvantaged if legislation or other changes occur.

Points will have a two year lifespan, after which older points will expire, and there must be a similar two year period of good compliance before those points can be removed completely.
It will be possible to appeal against points if there is a reasonable excuse for the late submission, and interestingly, HMRC will be able to use their own judgement/initiative when considering such appeals. It’s also through that there will be a transitional period of grace given while the new system beds in.

If you’d like to discuss how the change to the late filing rules might affect you, get in touch with your usual tax advisor , or give us a call on 0131 440 5000.

The information in this article should not be regarded as financial advice. This is based on our understanding in December 2018. Laws and tax rules may change in the future.