Self-assessment tax-return filers could face a 'penalty points' system if they miss deadlines while tardy tax-bill payers face fines of up to triple the current maximum, under Government proposals unveiled this week.

Rather than the automatic £100 fine you currently get for missing the self-assessment deadline, each failure to send in your financial info on time could accrue points – triggering automatic fines when you rack up a high number.

The new system would also see those who self-assess have to file updates to their tax returns every three months, though those earning under £10,000 a year (which includes over a million businesses and self-employed people) will now be spared this, according to the latest Government proposals.

Plans for quarterly filing caused upset when they were first unveiled last November, with some fearing it would create more opportunities for HM Revenue & Customs to hand down fines. A petition opposing it was signed by over 114,000 people.

The proposed new sanctions system, explained in a consultation document, is one aspect of a huge HMRC initiative to make the tax system fully digital by 2020, though the various proposals will be phased in gradually. Check our Tax Code Calculator to see if you're paying the correct amount of income tax.

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What are the new proposals?

There are two main proposals relating to fines and penalties – one for failing to send HMRC your financial info on time, and one for paying your tax late.

  • Late submission penalties. This relates to both the current end-of-year declarations and the planned new 'quarterly updates', in which people who self-assess and earn £10,000+ a year will have to update HMRC at least quarterly by logging in to their digital tax account.

    The Government's proposing a system whereby you'll receive penalty points for submitting information late. You'd receive an automatic fine if you reach a certain level of penalty points, either by missing submission deadlines on multiple occasions or potentially being particularly late with one or more of them.

    The points could be reset back to zero after two years if you then submit all your information on time throughout that period.

    However, this system only applies to cases where your lateness is deemed 'non-deliberate' by HMRC, meaning you weren't actively trying to avoid your tax obligations. If you're deemed to have deliberately avoided submitting your details to avoid paying tax, you'd be fined specifically for that.

    Currently, if you miss the final deadline to file your end-of-year self-assessment tax return, you'll get an automatic £100 fine. So the proposed system would represent a more relaxed approach to those who are unintentionally late, giving them a few chances to mend their ways before they're fined – though on the other hand, many will face four times as many deadlines.

  • Late payment penalties. This proposal relates to late payment of income tax, class 4 national insurance contributions, corporation tax and VAT.

    The consultation puts forward two competing 'models', setting out penalties with different timescales and fines. The biggest fine mooted outlined in one model is 15% of the outstanding bill, which would be charged if you were 12 months late in paying. Under this model you'd be first charged a 4% fine for being 30 days late, and a 10% fine if six months late. You'd be hit with 15% if a year late.

    The current maximum fine for settling your tax bill 12 months late is 5% of the bill, so a 15% fine would be triple the current penalty.

    The other model suggests a 5% fine applied at 30 days, six months and 12 months after the tax was due – and nobody knows yet exactly what the final system will look like.

HMRC plans 'penalty points' system for those who miss tax returns deadline
The Government is giving you the chance to comment on its new tax penalty proposals

What happens next?

These are only proposals and the Government is asking for feedback. However HMRC says it's seeking views on "detailed policy design" and a "framework for implementation of a specific proposal", NOT "views on alternative proposals". So while some of the details may change as a result of your views, the broad principles probably won't.

You can respond by the 7 November deadline by emailing MTDTA@hmrc.gsi.gov.uk or writing to Sue Harper, HM Revenue & Customs, Making Tax Digital Tax Administration, Room 1C/06, 100 Parliament Street, London, SW1A 2BQ.

What does HMRC say?

In a statement on its website, HMRC says: "The six consultation documents, which seek views on HMRC's Making Tax Digital programme to digitalise the tax system, are being unveiled as HMRC also announces that 1.3 million small businesses will be able to benefit from Making Tax Digital without needing to update HMRC quarterly or keep their records digitally.

"The decision to exempt the smallest businesses and landlords from digital record-keeping and quarterly updates follows months of constructive engagement with business and agent groups.

"The Government is also considering deferring digital record-keeping and quarterly updating for a further group of small businesses and will explore options to assist businesses with the transition. Finally the consultation documents confirm that those who cannot go digital will not be required to."

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