MTD for ITSA new penalty regime

Aug 12, 2022 | Blog Post

Despite all good intentions, unfortunately late submissions and payments can still occur. Historically, for every late submission, HMRC have issued an automatic penalty. The new penalty system will be implemented with the intention of creating a fairer and less severe way to achieve more timely submissions. We have compiled a list of frequently asked questions to help you understand more about the new penalty regime:

When will it start?

Once MTD for Income Tax (ITSA) comes into effect in April 2024, self-employed people and landlords with a turnover above £10,000 will be subject to the new points-based penalty system. All other ITSA taxpayers will follow in April 2025.

How will the new MTD late submission penalty system work?

The penalty system will be points based, just like speeding fines for motor vehicles. Financial penalties of £200 will be automatically applied, once a certain number of penalty points have been reached. Generally speaking, one point will apply each time a submission deadline is missed. From April 2025, the penalty system will apply to all Self Assessment taxpayers for periods on or after April 2025, even if they don ’t use MTD for ITSA.

Do the penalty points ever expire? 

Yes they do, after two years. The two years are counted from the month after you received the point. So if you received the penalty point in April, the two-year timeline would begin in May. Points do not expire when you’re at the penalty threshold.

Can I challenge a penalty?

Yes, if you think you have a reasonable excuse for missing a deadline, you can challenge a penalty or point. You can make your case through the internal HMRC review process. 

How much will the new fines be?

If you reach a penalty threshold, you’ll be subject to a £200 fine. Once you reach that threshold, every following failure to make a payment on time will incur a fine.

What will the reporting requirements be?

Quarterly updates of income and expenses for the following periods, by the following deadlines, regardless of their accounting period end, will be as follows:

 Period coveredFiling deadline
Quarterly update 16 April to 5 July5 August
Quarterly update 26 July to 5 October5 November
Quarterly update 36 October to 5 January5 February
Quarterly update 46 January to 5 April5 May

Why is this happening?

With a change in the tax system, there needs to be a change to the penalty system. HMRC have chosen to implement a new points based penalty system to better align with the changes brought in by Making Tax Digital for Income Tax. According to HMRC the aim of the new penalty system is to be more supportive of those with genuine reasons behind mistakes or late filing, whilst still penalising those who are consistently late.

How can I avoid getting a penalty?

The best thing you can do to avoid any points or penalties is to be fully prepared and this, is where we come in. We can help you to make sure that you are using MTD for ITSA compatable software, and complying with the new rules, giving you peace of mind and an in-depth understanding of the MTD for ITSA requirements.

Get in touch to see how we can help you, click here