Finance Act 2021

PART 2 U.K. Liability to a penalty

Liability to penalty points U.K.

5 (1) If a person fails to make a return on or before the due date, the person is liable to one penalty point for the group of returns to which the return belongs (but see sub-paragraphs (2) to (8)). U.K.

(2) A person is not liable to more than one penalty point per month for each of the following groups of returns, even if in that month there is more than one failure to make a return in that group on or before the due date—

(a) group 1A, 2A or 3A;

(b) group 4A, 4B or 4C.

(3) A person is not liable to more than one penalty point per month in respect of a failure to make a return in a digital reporting sub-group of returns, even if in that month there is more than one failure to make a return in that digital reporting sub-group on or before the due date.

(4) For the purposes of sub-paragraph (3), digital reporting sub-groups (1) and (2) of group 1B or 2B are to be treated as a single digital reporting sub-group.

(5) If—

(a) a person carries on more than one business and in relation to two or more of those businesses is required to make returns belonging to digital reporting sub-group (4) of group 1B or 2B or digital reporting sub-group (2) of group 3B, and

(b) the due dates for the returns belonging to the digital reporting sub-group in question do not all fall within the same month of a calendar quarter,

sub-paragraph (3) is to be read in relation to that digital reporting sub-group as if references to a month were references to a calendar quarter.

(6) “Calendar quarter” means a period of 3 months beginning with 1 January, 1 April, 1 July or 1 October.

(7) If there is more than one failure in a month or calendar quarter (as the case may be) to make a return in a group of returns, or in a digital reporting sub-group of returns, on or before the due date (see sub-paragraphs (2), (3) and (5)), the one penalty point for the month or calendar quarter to which the person is liable by virtue of this paragraph is for all of those failures.

(8) A person is not liable to a penalty point for a group of returns if the person already has the maximum number of penalty points for that group of returns.

(9) The maximum number of penalty points for a group of returns is—

(a) if the group is in Column A of the Table, 2 points,

(b) if the group is in Column B of the Table, 4 points, and

(c) if the group is in Column C of the Table, 5 points.

(10) See paragraphs 19 to 21 for further rules about liability to a penalty point.

Commencement Information

I1 Sch. 24 para. 5 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I2 Sch. 24 para. 5 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

Award of penalty points U.K.

6 (1) Where a person is liable to a penalty point for a group of returns, HMRC may award the person a penalty point for that group. U.K.

(2) Where HMRC award a penalty point they must notify the person, and state in the notice—

(a) the failure (or failures) in respect of which the penalty point is awarded, and

(b) the group of returns for which the penalty point is awarded.

(3) HMRC may not award a penalty point after—

(a) the later of date A and (where it applies) date B, or

(b) where the penalty point is to be awarded in respect of a failure (or failures) to make, on or before the due date, a return in digital reporting sub-group (3) or (4) of group 1B or 2B or digital reporting sub-group (2) of group 3B, the later of date A and (where it applies) date C.

(4) Date A is the end of the period of x weeks beginning with—

(a) if the penalty point is to be awarded in respect of a single failure, the day on which the failure occurred;

(b) if the penalty point is to be awarded in respect of more than one failure in the same month or, as the case may be, the same calendar quarter (see paragraph 5(7)), the day on which the latest of those failures occurred.

(5) In sub-paragraph (4) “x weeks” means—

(a) if the group of returns is in Column A of the Table, 48 weeks,

(b) if the group of returns is in Column B of the Table, 11 weeks, and

(c) if the group of returns is in Column C of the Table, 2 weeks.

(6) Date B is the last day of the period of 12 months beginning with—

(a) the end of the appeal period for the assessment of the liability to tax which would have been shown in the relevant return, or

(b) if there is no such assessment, the date on which that liability is ascertained or it is ascertained that the liability is nil.

(7) In sub-paragraph (6)(a)—

• “appeal period” means the period during which—

  (a)

  an appeal could be brought (ignoring any possibility of an appeal out of time), or

  (b)

  an appeal that has been brought has not been determined or withdrawn;

• “relevant return” means—

  (a)

  if the penalty point is to be awarded in respect of a single failure to make a return on or before the due date, that return;

  (b)

  if the penalty point is to be awarded in respect of more than one failure to make a return, on or before the due date, in the same month or, as the case may be, the same calendar quarter (see paragraph 5(7)), the return for which there was the latest due date in the period in question.

(8) If more than one return is the relevant return by virtue of paragraph (b) of the definition of “relevant return” in sub-paragraph (7) and the same day is not date B in relation to all of those returns, treat date B as being the latest of those days.

(9) Date C—

(a) applies where, on date A, it was not reasonable to expect HMRC to be aware that the person was required to make the return (or the returns), and

(b) is the last day of the period of 12 months beginning with the first day on which it was reasonable to expect HMRC to be aware that the person was required to make the return (or one of the returns).

(10) For the purposes of this Schedule, a person “has” a penalty point if HMRC has awarded the person the penalty point, the penalty point or liability to it has not been cancelled and the penalty point has not expired.

Commencement Information

I3 Sch. 24 para. 6 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I4 Sch. 24 para. 6 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

Expiry of individual penalty points U.K.

7 (1) A penalty point for a group of returns expires at the end of the relevant period, unless immediately before the end of that period the person has the maximum number of penalty points for that group of returns. U.K.

(2) The relevant period is—

(a) the period of 24 months beginning with the first day of the month after the month in which the failure or failures, in respect of which the point was awarded, occurred, or

(b) where paragraph 6(3)(b) applied to the award of the point and the point was awarded after date A and on or before date C, the period of 24 months beginning with the day after the day on which the point was awarded.

(3) Where the penalty point was awarded in respect of more than one failure by virtue of paragraph 5(5), the references in sub-paragraph (2)(a) to a month are to be read as references to a calendar quarter.

(4) In this paragraph—

• “calendar quarter” has the meaning given by paragraph 5(6);

• “date A” and “date C” have the meanings given by paragraph 6.

Commencement Information

I5 Sch. 24 para. 7 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I6 Sch. 24 para. 7 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

Expiry of all penalty points for a group of returns U.K.

8 (1) Each of a person's penalty points for a group of returns expires at the beginning of the first day on which both condition A and condition B are met. U.K.

(2) Condition A is that the person has made each return in the group on or before its due date for the relevant length of time (or longer).

(3) The relevant length of time is x months beginning with the first day of the month after the month in which the most recent failure to make a return in the group on or before its due date occurred.

(4) In sub-paragraph (3) “x months” means—

(a) if the group of returns is in Column A of the Table, 24 months,

(b) if the group of returns is in Column B of the Table, 12 months, and

(c) if the group of returns is in Column C of the Table, 6 months.

(5) Condition B is met on any day if the person has made all the returns in the group whose due date fell in the period of 24 months ending with the previous day (whether or not those returns were made on or before their due date).

(6) Where each of a person's penalty points for a group of returns expires under this paragraph, HMRC must notify the person.

Commencement Information

I7 Sch. 24 para. 8 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I8 Sch. 24 para. 8 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

Penalty points: effect of moving between groups of returns U.K.

9 (1) Paragraphs 10 to 13 apply where, in relation to any item in the Table, a person— U.K.

(a) ceases to be required to make returns in a group of returns specified in relation to that item in one column of the Table (the “old” group of returns), and

(b) instead becomes required to make returns in a group of returns specified in relation to that item in another column of the Table (the “ new ” group of returns),

(for example, where a person ceases to be required to make returns in group 1A and instead becomes required to make returns in group 1B).

(2) But where the returns in the old group of returns relate to a business or businesses carried on by the person, paragraphs 10 to 13 apply only if the returns in the new group of returns also relate to that business or all of those businesses.

Commencement Information

I9 Sch. 24 para. 9 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I10 Sch. 24 para. 9 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

10 (1) This paragraph applies to determine the penalty points the person has for the new group of returns, on becoming required to make returns for the new group of returns. U.K.

(2) If the person has no penalty points for the old group of returns, the person has no penalty points for the new group of returns.

(3) If the person has penalty points for the old group of returns, the number of penalty points the person has for the new group of returns is determined by taking the number of penalty points the person has for the old group of returns and adjusting it in accordance with the table below.

(4) If the adjustment gives a number of less than zero, treat the adjusted number of penalty points as zero.

Column in which old group of returns falls	Column in which new group of returns falls	Adjustment
Column A	Column B	Add 2 penalty points
	Column C	Add 3 penalty points
Column B	Column A	Deduct 2 penalty points
	Column C	Add 1 penalty point
Column C	Column A	Deduct 3 penalty points
	Column B	Deduct 1 penalty point

Commencement Information

I11 Sch. 24 para. 10 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I12 Sch. 24 para. 10 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

11 (1) This paragraph applies if the adjusted number of penalty points for the new group of returns is greater than zero, but less than the actual number of penalty points for the old group of returns. U.K.

(2) Treat the person as having, for the new group of returns, the penalty points which were awarded in respect of the x most recent relevant failures (but if a single penalty point was awarded in respect of more than one relevant failure, for the purposes of this sub-paragraph treat those relevant failures as a single relevant failure).

(3) “X” is the adjusted number of penalty points for the new group of returns.

(4) Treat the penalty points in respect of the other relevant failures as having expired (so that the person has no penalty points for the old group of returns).

(5) In this paragraph “relevant failure” means a failure to make a return in the old group of returns on or before its due date, in respect of which a penalty point was awarded.

Commencement Information

I13 Sch. 24 para. 11 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I14 Sch. 24 para. 11 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

12 (1) This paragraph applies if the adjusted number of penalty points for the new group of returns is greater than the actual number of penalty points for the old group of returns. U.K.

(2) Treat all the penalty points for the old group of returns as penalty points for the new group of returns.

(3) Treat the additional penalty points as having been awarded in respect of relevant failures occurring on the same day as the most recent relevant failure.

(4) For this purpose the additional penalty points are the penalty points added by way of adjustment to the actual number of penalty points for the old group of returns.

(5) In this paragraph “relevant failure” means a failure to make a return in the old group of returns on or before its due date, in respect of which a penalty point was awarded.

Commencement Information

I15 Sch. 24 para. 12 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I16 Sch. 24 para. 12 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

13 (1) Paragraph 8 applies in relation to the new group of returns with the following modifications. U.K.

(2) Sub-paragraph (3) applies as if for the words from “month in which” to the end there were substituted “ first month for all or part of which a return in the new group of returns is required to be made ”.

(3) The reference in sub-paragraph (5) to returns in the group includes returns in the old group of returns.

Commencement Information

I17 Sch. 24 para. 13 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I18 Sch. 24 para. 13 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

Penalty points: effect of change of representative member of VAT group U.K.

14 (1) This paragraph applies where— U.K.

(a) a person is replaced as the representative member of a group (“the former representative member”) by another member of the group (“the new representative member”) under section 43B of VATA 1994, and

(b) the former representative member has penalty points for the group of 4A, 4B or 4C returns for the businesses that were treated by section 43(1) of VATA 1994 as being carried on by the former representative member (and are now treated by that section as being carried on by the new representative member).

(2) Where this paragraph applies, treat the new representative member as having the penalty points that the former representative member has for the group of returns.

Commencement Information

I19 Sch. 24 para. 14 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I20 Sch. 24 para. 14 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

Liability to penalties U.K.

15 (1) If a person fails to make a return on or before the due date and condition A or condition B is met, the person is liable to a penalty (but see sub-paragraphs (5) and (9)). U.K.

(2) Condition A is that—

(a) the person is awarded a penalty point in respect of the failure (including where the penalty point is awarded in respect of the failure and another failure or other failures), and

(b) on being awarded that penalty point, or on being awarded after that failure a penalty point in respect of an earlier failure (or earlier failures), the person has the maximum number of penalty points for the group of returns to which the return belongs.

(3) Condition B is that the failure occurs on a day on which the person has the maximum number of penalty points for the group of returns to which the return belongs.

(4) The amount of a penalty under this paragraph is £200.

(5) A person is not liable to more than one penalty per month in respect of a failure to make a return in a digital reporting sub-group of returns, even if in that month there is more than one failure to make a return in that digital reporting sub-group on or before the due date.

(6) For the purposes of sub-paragraph (5), digital reporting sub-groups (1) and (2) of group 1B or 2B are to be treated as a single digital reporting sub-group.

(7) If—

(a) a person carries on more than one business and in relation to two or more of those businesses is required to make returns belonging to digital reporting sub-group (4) of group 1B or 2B or digital reporting sub-group (2) of group 3B, and

(b) the due dates for the returns belonging to the digital reporting sub-group in question do not all fall within the same month of a calendar quarter,

sub-paragraph (5) is to be read in relation to that digital reporting sub-group as if references to a month were references to a calendar quarter.

(8) “Calendar quarter” means a period of 3 months beginning with 1 January, 1 April, 1 July or 1 October.

(9) If there is more than one failure in a month or calendar quarter (as the case may be) to make a return in a digital reporting sub-group of returns on or before the due date (see sub-paragraphs (5) and (7)), the one penalty for the month or calendar quarter to which the person is liable by virtue of this paragraph is for all of those failures.

(10) See paragraphs 19 to 21 for further rules about liability to a penalty.

Commencement Information

I21 Sch. 24 para. 15 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I22 Sch. 24 para. 15 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

Assessments U.K.

16 (1) Where a person is liable to a penalty under this Schedule HMRC may assess the penalty. U.K.

(2) Where HMRC assess a penalty they must—

(a) notify the person, and

(b) state in the notice the failure (or, where paragraph 15(9) applies, the failures) for which the person is liable to a penalty.

(3) Where a person is liable to a penalty because condition A in paragraph 15 is met, notice of an assessment of the penalty may not be issued before (but may be issued at the same time as) notice under paragraph 6 of the award of the penalty point as a result of which the person is liable to the penalty.

(4) A penalty under this Schedule must be paid before the end of the period of 30 days beginning with the day on which notification of the penalty is issued.

(5) An assessment of a penalty under this Schedule—

(a) is to be treated for procedural purposes in the same way as an assessment to the tax concerned (except in respect of a matter expressly provided for in this Schedule),

(b) may be enforced as if it were an assessment to the tax concerned, and

(c) may be combined with an assessment to the tax concerned.

Commencement Information

I23 Sch. 24 para. 16 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I24 Sch. 24 para. 16 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

Time limit for assessments U.K.

17 (1) An assessment of a penalty under this Schedule may not be made after— U.K.

(a) the later of date A and (where it applies) date B, or

(b) where the penalty is to be assessed in respect of a failure (or failures) to make, on or before the due date, a return in digital reporting sub-group (3) or (4) of group 1B or 2B or digital reporting sub-group (2) of group 3B, the later of date A and (where it applies) date C.

(But see sub-paragraphs (7) and (8).)

(2) Date A is the end of the period of 2 years beginning with—

(a) if the penalty is to be assessed in respect of a single failure, the day on which the failure occurred;

(b) if the penalty is to be assessed in respect of more than one failure in the same month or, as the case may be, the same calendar quarter (see paragraph 15(9)), the day on which the latest of the failures occurred.

(3) Date B is the last day of the period of 12 months beginning with—

(a) the end of the appeal period for the assessment of the liability to tax which would have been shown in the relevant return, or

(b) if there is no such assessment, the date on which that liability is ascertained or it is ascertained that the liability is nil.

(4) In sub-paragraph (3)(a)—

• “appeal period” means the period during which—

  (a)

  an appeal could be brought (ignoring any possibility of an appeal out of time), or

  (b)

  an appeal that has been brought has not been determined or withdrawn;

• “relevant return” means—

  (a)

  if the penalty is to be assessed in respect of a single failure to make a return on or before the due date, that return;

  (b)

  if the penalty is to be assessed in respect of more than one failure to make a return, on or before the due date, in the same month or, as the case may be, the same calendar quarter (see paragraph 15(9)), the return for which there was the latest due date in the period in question.

(5) If more than one return is the relevant return by virtue of paragraph (b) of the definition of “relevant return” in sub-paragraph (4) and the same day is not date B in relation to all of those returns, treat date B as being the latest of those days.

(6) Date C—

(a) applies where, on date A, it was not reasonable to expect HMRC to be aware that the person was required to make the return (or the returns), and

(b) is the last day of the period of 12 months beginning with the first day on which it was reasonable to expect HMRC to be aware that the person was required to make the return (or one of the returns).

(7) Sub-paragraph (8) applies where—

(a) a person is liable to a penalty in respect of a failure to make a return because condition A in paragraph 15 is met,

(b) that condition is only met because the person has the maximum number of penalty points for the group of returns to which the return belongs on being awarded after that failure a penalty point in respect of an earlier failure (or earlier failures), and

(c) when the penalty point is awarded in respect of the earlier failure (or earlier failures) an assessment of the penalty to which the person is liable may no longer be made because of sub-paragraph (1).

(8) Where this sub-paragraph applies—

(a) sub-paragraph (1) does not apply, and

(b) the assessment of the penalty may instead be made during the period of 12 months beginning with the first day on which it was reasonable to expect HMRC to be aware of the earlier failure (or one of the earlier failures).

Commencement Information

I25 Sch. 24 para. 17 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I26 Sch. 24 para. 17 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)

Power to amend figures by regulations U.K.

18 (1) The Commissioners for HMRC may by regulations— U.K.

(a) amend paragraph 5(9) so as to increase or reduce the maximum number of penalty points for a group of returns;

(b) amend paragraph 8(4) so as to increase or reduce the number of months;

(c) amend paragraph 8(5) so as to increase or reduce the number of months;

(d) amend paragraph 15(4) so as to increase or reduce the amount of the penalty.

(2) Regulations under sub-paragraph (1)(a) may also amend column 3 of the table in paragraph 10.

(3) Regulations under this paragraph—

(a) are to be made by statutory instrument;

(b) may include transitional, transitory and saving provision.

(4) A statutory instrument containing regulations under this paragraph may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

Commencement Information

I27 Sch. 24 para. 18 in force at 1.1.2023 for specified purposes by S.I. 2022/1278, reg. 2(1)

I28 Sch. 24 para. 18 in force at 6.4.2024 for specified purposes by S.I. 2024/440, reg. 2(1)