As is often the case the Chancellor’s Budget speech in the House of Commons has further detail added to it in the days after it is delivered. The announcement of the new tax interest and penalty regime effective from April 2022 is just one of the additional details this year.
From April 2022 there will be a new tax interest and penalty regime for the late submission of tax returns and the late payment of tax due. These will apply for both VAT and Income Tax. The changes to income tax will happen in two stages – firstly in April 2023 for the new Making Tax Digital for Income Tax Self Assessment (MTD ITSA) and then for other income tax self assessment a year later
Late Submission Penalties
- VAT – Applies to VAT periods starting on or after 1 April 2022
- MTD ITSA – accounting periods beginning on or after 6 April 2023
- Other ITSA – accounting periods beginning on or after 6 April 2024
Currently there is an automatic £100 penalty for late income tax submissions. This will be replaced with a penalty point system where taxpayers incur a penalty point for each missed submission and a financial penalty of £200 will only be incurred once a penalty points threshold is reached. This threshold level depends upon the frequency of the required submission (monthly, quarterly or annual). Any penalty points incurred will expire after 24 months of full compliance. Thus whilst the penalty is doubled it will be more generous to a taxpayer who has a single late submission compared to the current system.
Late Payment Penalties
The same implementation dates as above apply for this aspect of the new tax interest and penalty regime.
- A first penalty of 2% of the unpaid tax is charged when the payment is 15 days late
- This increases to 4% if the tax remains unpaid after 30 days
- After 30 days an additional penalty is then charged on a daily basis at an annualised rate of 4% of the tax due
Time To Pay Arrangement
HMRC have confirmed that a taxpayer who agrees a Time To Pay Arrangement before the penalty is charged will not incur the late payment penalty.
HMRC have confirmed that they will take a light touch approach to the 15 day aspect in the first year of operation for both VAT and ITSA but they stress the need for taxpayers to get in touch with them to discuss the situation. Of course light touch doesn’t mean that the penalty wont be applied and as always it is best to avoid this situation altogether by paying amounts due on time or agreeing an instalment plan through the Time To Pay system.
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