How does the HMRC penalty points system work for late tax returns?

Full answer

**Background: the points-based penalty regime** HMRC introduced a points-based late submission penalty regime, initially for VAT (from January 2023) and extending to Income Tax Self Assessment under Making Tax Digital (MTD for ITSA). The system is designed to be fairer to taxpayers with occasional lapses while penalising persistent non-compliance. **How points accumulate** - 1 point is added for each late submission - Points accumulate separately for each obligation type (e.g. MTD quarterly vs. annual) - For quarterly filers: the penalty threshold is **4 points** **What happens at the threshold?** Once you reach 4 points: - A £200 financial penalty is charged for that submission - A further £200 penalty is charged for each subsequent late submission while the threshold has been reached **Example: Emma, MTD for ITSA quarterly filer** Emma submits her Q1 return late (1 point), Q2 on time, Q3 late (2 points), Q4 late (3 points), then Q1 of the next year late (4 points = threshold reached). She receives a £200 penalty for that Q1 submission. If her Q2 is also late, she gets another £200. **How to reset penalty points** Points are reset to zero after a compliance period — typically 24 months of consecutive on-time submissions for quarterly filers. Points also expire automatically after two years even if the threshold has not been reached. **Late payment penalties** Separate from points, HMRC also charges late payment penalties: - 2% of unpaid tax after 15 days - A further 2% (total 4%) after 30 days - 4% per annum on any tax still unpaid after 31 days (interest continues to accrue) **Appeals** You can appeal a penalty point or financial penalty if you have a reasonable excuse (serious illness, bereavement, HMRC system failure). Appeals must generally be made within 30 days.

More answers

• What is the difference between an HMRC compliance check and a tax investigation?