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New penalty regime to apply to taxpayers testing making tax digital

Author: ICAEW Insights

Published: 08 Apr 2024

HMRC has explained how penalties will be charged where volunteers testing making tax digital income tax self assessment are late in making a payment or submitting a return.

HMRC has published guidance on the late submission and payment penalties that apply where a person volunteers to test making tax digital income tax self assessment (MTD ITSA). Agents will be invited to sign up clients for MTD ITSA later in April.  

The volunteer must confirm that they want the new penalties to apply to them. However, ICAEW understands that it won't be possible to join the testing without such a confirmation. Once the decision is taken it cannot be reversed.  If the person volunteers from 6 April 2024, they will confirm as part of signing up to MTD ITSA. However, if they volunteered earlier, HMRC will write to them and explain what needs to be done. An agent can agree to the new penalties on behalf of their clients.  

Late submission penalties 

The new late submission penalties are points based. A penalty point is issued for each annual return submitted late. If the person reaches two points, they will get a £200 penalty. A further £200 penalty will be charged if another annual return is submitted late. Points are removed if all future annual return obligations are met over 24 months. Penalty points will not be issued for late quarterly updates during the testing phase. 

The new late submission penalties will only apply to the volunteer’s personal income tax self assessment (ITSA). The penalty points for ITSA are separate from the penalty points for VAT. The new regime is less harsh as it allows one deadline to be missed before a financial penalty is incurred. 

Late payment penalties 

A late payment penalty will be charged where a balancing payment or an amount due following an amendment or assessment is paid more than 15 days late. This is a shorter timeframe than the current regime. A penalty is not charged in respect of a late payment on account.  

The penalty is equal to 2% of the tax outstanding 15 days after the due date (day 15). If the payment is not made by day 30, a further penalty equal to 2% of the amount due at that point is charged. A further penalty is charged at the rate of 4% per year for every day tax is unpaid after day 30.  

HMRC will send a penalty decision letter when a penalty is charged. The taxpayer may appeal against the penalty. It is also possible to appeal against penalty points. 

ICAEW’s Tax Faculty will consider the pros and cons of joining the testing during a webinar on 24 April 2024. The webinar is available free-of-charge to ICAEW and non-ICAEW members. For ICAEW members, the webinar could also contribute up to one hour of verifiable CPD.    

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