Tax Return Penalties Become Points Based

Tax Return penalties have remained pretty much the same for more than 20 years. File a day late and there will be £100 fine. In another six months a further £100 is added. And there was a time when HMRC could not charge more than the tax you owed. The real penalty was in the 5% charge they could levy if you had not paid a month after the deadline.
That is now likely to change. In the recently published draft clauses that will form the basis of the Budget later this year, HMRC has outlined a significant change to the way they will be levying tax return penalties for late filing breaches under the Making Tax Digital regulations.
Rather than base penalties on each transgression, taxpayers will receive a penalty point per event, and when these penalties reach a certain amount the taxpayers will be required to pay a fixed penalty.
Essentially, if you miss a deadline a point will be given, but a penalty will only be charged when a specified number of points are accrued. According to HMRC, the number of points required for a penalty to be levied depends on the filing frequency of the return.
HMRC is also introducing an amended penalty for deliberately withholding information from HMRC.  They will have the power to charge penalties where a taxpayer deliberately withholds information which would enable HMRC to assess their tax liability. These penalties are based on a percentage of the tax due and can be reduced based on the taxpayer’s willingness to correct past disclosure.
The new system is similar to that adopted for driving offences. Of course, there is no suggestion that if you gather enough points in tax return penalties you will then be banned from paying tax… Now there’s a thought!