HMRC is changing the way taxpayers interact with them in a project called making tax digital (MTD). Most VAT registered businesses are already submitting their VAT returns using MTD-compatible software and unincorporated businesses will have to use MTD software from April 2023. Income tax reporting by unincorporated businesses will be required at least quarterly rather than once a year as is currently the case under self assessment.

HMRC has announced that they will use a new points based system to encourage taxpayers to submit MTD updates on time. The taxpayer will be given points for every late VAT or income tax return and once a defined number of points is reached an automatic £200 penalty will be issued.

This new points and penalty system will commence from 1 April 2022 for VAT and from 6 April 2023 for taxpayers submitting MTD income tax updates.

Sanctions for late payment of tax will also be harmonised across all taxes.

Last updated: April 29th 2021.