A guide to the changes to penalties for late self-assessment tax returns and tax payments

What are the current penalties for late self-assessment returns and late tax payments?

Under current rules, the penalties for filing a self-assessment tax return late is as follows:

• One day late: An automatic fixed penalty of £100 which applies even if no tax is due or the tax owed has been paid on time.
• Three months late: £10 per day up to a maximum of £900 for 90 days.
• Six months late: £300 or 5% of the tax due, whichever is higher.
• 12 months late: £300 or 5% of the tax due, whichever is higher.

If the withholding of information after more than 12 months is deliberate or concealed, further penalties may be due.

For late payment of tax, the current rules are:

• 30 days late: 5% of tax due.
• Over five months after the first penalty: 5% of outstanding tax due at that date.
• Over 11 months after the first penalty: 5% of outstanding tax due at that date.

Why are penalties for late self-assessment returns and late tax payments changing?

The Government first announced reform of sanctions for late submission and late payment as part of the Spring 2021 Budget delivered by the then Chancellor Rishi Sunak. The change sees a move to a points-based system and the reforms start with VAT and Income Tax Self-Assessment (ITSA).

Outlining the changes, an HMRC spokesperson told TaxAssist: “We are reforming penalties to make them fairer, more effective and consistent across taxes with the focus on taxpayers who persistently miss filing and payment deadlines, rather than those who occasionally slip-up.”

When will penalties for late self-assessment returns and late tax payments change?

The new penalty system for late VAT returns and payments has already been introduced. For self-assessment, it will be introduced in April 2026.

It is linked to the phased introduction of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) which requires businesses, self-employed individuals, and landlords to keep digital records and use MTD-compatible software to submit updates to HMRC.

Businesses, self-employed individuals, and landlords with income over £50,000 will be mandated to join first from April 2026.

The rules will apply to those with income over £30,000 from April 2027.

For those with a lower income, a written statement to Parliament by Victoria Atkins, Financial Secretary to the Treasury, said: “The Government will now review the needs of smaller businesses, and particularly those under the £30,000 threshold. This will look in detail at whether and how the Making Tax Digitalfor Income Tax Sellf-Assessment service can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their Income Tax obligations.”

How will the new late submission penalties for self-assessment work?

Under the new system, a point will be received every time a self-assessment tax return submission deadline is missed. Once a certain threshold of points is reached, a £200 penalty will be charged. A further £200 penalty will be charged for every subsequent late submission, but the taxpayer’s points total will not increase.

The penalty thresholds will be as follows:

Submission frequency	Penalty points threshold
Annual returns	2
Quarterly returns	4
Monthly returns	5

Once a penalty threshold has been reached, points will be reset to zero if all returns are submitted on time during what HMRC describes as a “period of compliance”.

The periods of compliance are as follows:

Submission frequency	Period of compliance
Annual	24 months
Quarterly	12 months
Monthly	6 months

There are more details in a Government policy paper here.

How will the new late payment penalties for self-assessment work?

The new system involves a first penalty followed by a second penalty if the payment remains overdue.

A penalty will not be charged if the outstanding tax is paid within the first 15 days after the due date. The first penalty is charged if the payment is overdue by 16 or more days. The second penalty is charged when a payment is 31 or more days overdue.

For the first penalty, the amount is 2% of the tax due after day 15. The second penalty is 2% of the tax outstanding after day 15 plus 2% of the tax outstanding at day 30.

There are more details in a Government policy paper here.

The benefits of submitting your self-assessment tax return early

To avoid penalties, you need to file your tax return and pay your taxes on time.

While you can file up to 11.59pm on deadline day, there are many benefits to filing early. They include:

• You may be due a tax refund for various reasons such as excessive payments on account based on the previous year's income. The sooner you file, the sooner any refund you are due can be processed.
• Filing your tax return early can help you manage your business’ cash flow. Knowing exactly how much your tax bill will be in advance will help you to plan effectively for how you will be able to pay it.
• Getting your tax return out of the way can free up time for you to focus on growing your business.

For more details on the benefits of having your tax return filed early, read this guide.

How TaxAssist Accountants can help

We can help you complete your tax return early, so you know how much tax needs to be paid and by when.

If you are due a tax refund, it makes sense to receive it as soon as possible. We work with many self-employed individuals and business owners and we can help you too.

If you need help with your self-assessment affairs, call us today on 0151 515 3636 or drop us a line using our online enquiry form.

Date published 23 May 2023 | Last updated 20 Mar 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

---