Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is bringing a colossal change to reporting for many people. Short and Sons Accountants will make the process as easy as possible for you, but we understand there are many components that people will need and want to understand.
While putting together our guide to MTD for ITSA, it became clear that we should make a separate post about the penalties, as there is much to cover. Please read our other article first (click here) and find out if you will be affected.
Filing Penalty Points
To encourage timely submissions, HMRC has introduced a points-based penalty system:
Late Submission Penalties: You will incur a penalty point for each missed submission deadline. Accumulating a certain number of points will result in a £200 fine. The thresholds are:
Annual Submissions: 2 points
Quarterly Submissions: 4 points
Once the threshold is reached, a £200 penalty is issued, with an additional £200 fine for each subsequent late submission. Points expire after the following periods of on-time compliance:
Annual Submissions: 24 months
Quarterly Submissions: 12 months
If you have read our other post about MTD, then you will know that HMRC will require you to file 5 times a year; this is made up of 4 quarterly updates and then a final declaration.
Here's an example of how the new points system works. If you miss 2 years' worth of reporting under MTD for ITSA then you would have missed 8 quarterly filings and 2 annual filings. The first 4 missed quarters will only result in a £200 fine, but now that 4 have been accumulated the following 4 result in £200 each, totalling £1000 for all 8 missed Quarters.
The 2 missed annual filings will result in an additional £200 fine.
Ultimately, HMRC would impose £1200 in fines for the 2 years worth of missed filings and unless the taxpayer can make the points expire by filing on time for the following 12-24 months, then each point accumulated will result in an additional £200 fine from then on.
Payment Penalty Rates
HMRC are also changing the penalties for late payments, please see the table below:
Time After Due Date | Penalty |
Up to 15 days late | No penalty if paid or a Time to Pay (TTP) arrangement is agreed |
16 to 30 days late | 2% of the outstanding tax (as of day 15) |
31 days late | An additional 2% of the outstanding tax (as of day 30) |
From day 31 onwards | A daily accruing penalty of 4% per year until paid |
As can be seen the penalties accrue a lot quicker than before, putting pressure on timely pay despite the rates being lowered. HMRC have said they will take a light-touch approach when moving to this new system and will not assess the first penalty at 2% after 15 days, allowing taxpayers 30 days to approach HMRC before a penalty is charged.
REMEMBER - HMRC will also charge interest on late tax payments to compensate for the delay, based on the Bank of England rate, even if you set up a TTP arrangement within the first 15 days.
MTD for ITSA will bring new challenges for many people, and as we have seen before, HMRC may still make changes to what they have currently proposed for MTD. Short and Sons Accountants are here to tackle those challenges and ensure you can continue focusing on your business without letting this tax change interrupt you.