Penalties for late submission MTD Vat & ITSA Summary

How are points generated?

Taxpayers will no longer receive an automatic financial penalty if they fail to meet a submission obligation. Instead, they will incur a certain number of points for missed obligations before a financial penalty is levied. The changes now apply to VAT customers for accounting periods beginning on or after 1 January 2023.

For ITSA customers, the changes will apply as customers become mandated to Making Tax Digital (MTD). This means:

. for businesses, self-employed individuals and landlords with income over £50,000 per year from the tax year beginning 6 April 2026

. for businesses, self-employed individuals and landlords with income over £30,000 per year from the tax year beginning 6 April 2027

For all other ITSA customers outside the scope of MTD, the changes will apply after the introduction for MTD taxpayers.

Taxpayers will receive a point every time they miss a submission deadline. HMRC will notify them of each point. At a certain threshold of points, a financial penalty of £200 will be charged and the taxpayer will be notified. The threshold is determined by how often a taxpayer is required to make their submission.

When a taxpayer has reached the relevant threshold, as determined by their submission frequency, a penalty will be charged for that failure and every subsequent failure to make a submission on time, but their points total will not increase.

The penalty thresholds will be as follows:

Taxpayers will have one points total for each submission obligation they have. For example, if a taxpayer is required to provide an annual ITSA return and quarterly VAT returns, they will have separate points totals for ITSA and VAT. If both returns are late, a point will be applied to the points total to which the return relates. So, a taxpayer will have one group of points for VAT and another for ITSA.

Will My Points Expiry?

After a taxpayer has reached the penalty threshold, all the points accrued within that points total will be reset to zero when the taxpayer has met both the following conditions:

1. A period of compliance (that is, meeting all submission obligations on time for the period of compliance — see period of compliance table).

2.The taxpayer has submitted all the submissions which were due within the preceding 24 months. It does not matter whether or not these submissions were initially late.

Both requirements must be met before points can be reset.

The periods of compliance are: