Spring Budget 2021: Making Tax Digital – A new penalty regime

A new points based penalty system is to be introduced to reflect the increased obligations under MTD and to make the penalty system fairer, so that taxpayers who make the occasional slip-up receive more leniency than those who consistently miss the deadline. 

Points will be awarded for missing deadlines and penalties applied once certain thresholds have been reached, but points will time expire if deadlines are then met for set periods.

The penalty reform will apply to Self-Assessment and VAT and will come into effect as follows:

• VAT taxpayers for accounting periods beginning on or after 1 April 2022.
• Self-Assessment taxpayers with business or property income over £10,000 per year (who are required to submit digital quarterly updates through Making Tax Digital) for accounting periods beginning on or after 6 April 2023, and to all other Self-Assessment taxpayers beginning on or after 6 April 2024.

Tax payment penalties are also to be changed, with fixed penalties when tax is 15 days (2%) and 30 days (4%).  From day 31, daily penalties will also accrue at a rate of 4% per annum.