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Alongside the introduction of MTD, HMRC announced a new penalty regime. The regime is currently levied on VAT registered businesses and will also apply to MTD for Income Tax when it begins from April 2026 and possibly MTD for Corporation Tax when implemented.
Late Submission
· Taxpayers will receive one point for every missed submission deadline; HMRC will notify the taxpayer of each point as incurred. The points will expire after two years
- When a taxpayer reaches a certain threshold a financial penalty of £200 will be charged; this threshold will be four points for landlords making quarterly submissions.
- Once the threshold has been reached, the taxpayer will be required to bring all outstanding returns from the preceding 24 months up to date and achieve the period of compliance for the following 12 months for the points to be reset to zero.
- Points will be totalled separately for different submission obligations i.e. should a taxpayer be required to make both self-employed and landlord submissions the points system is separate.
Late Payment Regime
Taxpayers will no longer receive an automatic penalty if they fail to meet a submission obligation, but instead incur a penalty point for each failure as follows:
- no penalty if the outstanding tax is paid within 15 days after the due date
- after 15 days, a penalty of 2% of any outstanding tax will be applied
- this increases to 4% of any outstanding tax if still unpaid 31 days after the tax was due to be paid.
First Year
HMRC have confirmed that for the first year of implementation a ‘light touch’ approach to applying the first penalty (i.e. 2% after 15 days) will be made. Taxpayers will be allowed 30 days to approach HMRC to ask for a ‘Time to pay’ arrangement. The 4% penalty will be charged on any outstanding tax remaining unpaid after the 30 days even if an arrangement has been made.
