The first transition to making tax digital (MTD) is fast approaching. For periods beginning on or after 1st April 2022, it will be compulsory for all VAT registered traders to file their VAT returns using MTD-compatible software. The only instance whereby this will not apply will be when HMRC has agreed that the taxpayer is exempt.

Along with VAT registered traders, from the 6th April 2024, sole traders will also need to begin filing quarterly and annual income tax reports using MTD software. Most partnerships will then join the MTD regime from 2025.

To encourage taxpayers to stick within these deadlines, the Government will be introducing a new system of point-based penalties for those who file their reports late.

What Will Be The Consequences For Late Filing?

For each late filing, taxpayers will be awarded one point. There will also be point thresholds implemented, which means that should these be left to accumulate, a £200 penalty will be imposed. These thresholds will differ based on how often a taxpayer submits their return and are as follows:

Submission FrequencyPenalty ThresholdPeriod Of Compliance
Annual2 points24 months
Quarterly4 points12 months
Monthly5 points6 months

For quarterly returns, the 4th point triggers the £200 penalty. After this penalty is imposed, every late submission will trigger another £200 penalty. Additional penalties, however, will not add further points to the points slate.

Each point accumulated will expire after 2 years; this will start the month after the late filing occurs. It is also possible for the point slate to be wiped clean, but only if the taxpayer achieves the following:

  • Zero late submissions for a period of compliance (see above table);
  • All returns for the previous 24 months have been led, even if led late.

Appeals can be lodged against all points and penalties levied by HMRC.