Late Submission Penalty

When will the Late Submission Penalty (LSP) regime start?

• From 1^st January 2023 for VAT.
• From 6^th April 2026 for those self-employed and property landlords who will be caught by Making Tax Digital for Income Tax Self-Assessment (MTD ITSA).
• From 6^th April 2025 for those taxpayers caught up within the SA Return system.

 How will the new LSP regime work?

• It will be based upon a points system.
• Each late submission will result in a penalty point until you reach the penalty threshold.
• Once the threshold has been reached a penalty will be charged.
• The penalty has initially been set at £200.
• Every late submission after the threshold has been met will result in a further penalty of £200 being charged. No additional points will be added.

 What is the penalty point threshold?

• It will depend upon which threshold group the submission falls within.
• The groups are based upon how frequently a submission is required to be filed during a year, as per the table below:

What type of submissions will be affected by this?

• VAT returns could fall into either of the three groups depending upon your individual circumstances.
• Self-employed individuals who will need to register for MTD ITSA. Their quarterly submissions will fall within the quarterly penalty frequency group.
• Property landlords who will need to register for MTD ITSA. Their quarterly submissions will fall within the quarterly penalty frequency group.
• The annual MTD submissions such as the end of period statement (EPOS) and the finalisation statement will both be within the annual penalty frequency group.
• Those who continue to complete and submit a Self-Assessment tax return or a Trust return, will also fall within the annual penalty frequency group.

When do the penalty points expire?

• Where you have not reached the penalty threshold, the points will expire after two years.
• Where you have reached the penalty threshold, points will not expire after two years but will endure until you are fully compliant during what HMRC call a ‘period of compliance’
• The ‘period of compliance’ depends upon the penalty frequency group involved, as per the table below:

Can you appeal against a penalty point and/or the penalty itself?

• You can ask that HMRC carry out an internal review on the decision.
• You can appeal to the courts.
• The grounds of the appeal has to be based upon reasonable excuse.

 What happens if you change the frequency of the submission?

• In many taxes (e.g. VAT), you can request changes to how often you submit returns if you meet certain conditions.
• Where you change the frequency of your filing obligation (for example, changing the filing for VAT returns between monthly, quarterly and annually) and you have outstanding unexpired points, then your points total will be increased if the filing obligation becomes frequent and reduced if it becomes less frequent.
• The change in the points system is reflected in the table below:

Important factors to note

• Where you make quarterly submissions for both VAT and MTD ITSA, each one is looked at separately and has its own penalty point threshold.
• Penalty points arising on the late submission of EPOS and/or the finalisation statement will not be linked to the MTD quarterly filing penalty threshold.
• Where a person carries on more than one business and files their quarterly updates in different months, only one point will be levied per quarter, regardless of how many businesses fail to file that quarter period. Tax year quarters will apply in this case.
• This should not be confused with the new HMRC late payment penalty regime, which is coming in at the same time.

Tip

• Is it worth considering aligning the VAT quarterly submissions with the MTD ITSA quarterly filing dates?
• Make a diary note of the filing dates so that penalty points do not arise.
• Take note of any legitimate reasonable excuse for delay in submissions and ensure that the timing of the filing of the return does not go beyond that ‘reasonable excuse’ expiry period.