HMRC’s Points-Based Penalties: How Can You Avoid Wrecking Your Score On Late VAT & MTD Filings?

Running a business means you’re juggling a lot, from delivering services to managing your team to keeping up with compliance. At times, tax deadlines can sneak up on you: maybe you’re busy converting to cloud accounting, or you’ve got a property portfolio to manage alongside your sole-trader venture.

Whatever your situation, the reality is this: falling behind on your VAT submissions or digital records under HM Revenue & Customs’ new frameworks means risk, and one of the biggest risks is the increasingly strict HMRC points-based penalties system.

If you’d like professional guidance as you navigate these changes, feel free to call us on 01732 387 059 or email .

What Are HMRC Points-Based Penalties?

In short, the HMRC points-based penalties regime is a system designed to encourage the timely filing of VAT returns, digital tax submissions (such as those required under Making Tax Digital for Income Tax Self-Assessment), and other tax obligations. Rather than simply imposing a fine after a single late submission, HMRC may now assign “points” for each missed deadline. When you accumulate a certain number of points, the penalty increases.

Although the system is well known for its VAT (and late VAT returns), it’s increasingly relevant as digital record-keeping requirements expand. The purpose is clear: improve compliance, reduce late filings, and shift businesses toward real-time or quarterly digital submissions.

Why The Stakes Are Higher With MTD & VAT

With the introduction of MTD for VAT and upcoming changes in digital income tax reporting, many businesses (sole traders, landlords, limited companies) must keep digital records, submit returns through compatible software and meet quarterly timetables.

Here’s what increases the risk:

• Missed or late VAT returns = points under HMRC’s system.
• Inadequate digital records or failing to submit under MTD for Income Tax = risk of penalties and points accrual.
• For those who still use spreadsheets or paper records (rather than approved software), the “digital link” requirements may also trigger compliance issues.

The result? Even one late filing could result in a points deduction. Accumulate those marks, and your “penalty threshold” could be reached, meaning a financial penalty as well as reputational damage.

Common Triggers For Penalties (And How To Avoid Them)

Late Or Missing VAT Returns

Even for businesses registered for VAT but not yet fully digital, late returns are a key trigger. Avoid this by:

• Scheduling reminders for each VAT period.
• Automating bookkeeping so you always have figures ready.
• Using cloud accounting software (we work with Xero, Sage, QuickBooks, Oracle, KashFlow) to ensure you never fall behind.

Not Transitioning To Digital Records Under MTD

If you’re a sole trader or landlord, especially with rental income above the thresholds for MTD for Income Tax, failing to move to compliant digital records may lead to penalties. We can assist with digital record migration and quarterly updates.

Poor Software/No Digital Link

Under MTD, HMRC requires a “digital link” between software or spreadsheets. If you attempt to manually link spreadsheets or export/import data in non-compliant ways, you increase the risk. We help you select HMRC-recognised software and ensure your digital trail remains audit-ready.

Failing To Register Or Submit

For example, if your business crosses the VAT threshold (or you meet MTD income thresholds) and you don’t register or start submissions in time, points may be issued. Early planning and professional support remove that risk.

How We Help You Stay Penalty-Free

At Precision Accountants, our expertise is your defence. Here’s how we help:

• We register you for MTD for Income Tax or VAT as required; we handle agent authorisation, software setup and link you to a steady process.
• We migrate your records to digital: moving from spreadsheets or paper books into approved platforms, ensuring you meet the digital-link rules.
• We perform quarterly updates: instead of annual panic, we keep your submissions flowing and avoid late-filing triggers.
• We provide ongoing support and reminders, ensuring you’re never left wondering if you’re compliant. You’ll have a dedicated advisor who is familiar with your business.
• We review your compliance ahead of deadlines, identifying potential issues (missing invoices, misclassified expenses) so you stay in compliance.

By doing so, we minimise the risk of triggering the HMRC points-based penalties regime and ensure your accounting functions as an asset, not a liability.

Conclusion: Stay Ahead, Stay Compliant, Stay Free From Penalty Points

The shift towards digital tax, quarterly updates, and the HMRC points-based penalties regime means that staying on top of deadlines isn’t just “important,” it’s essential. At Precision Accountants Ltd, we treat your business as our partner, not just another account. We’ll get you set up, keep you compliant, avoid risky late filings, and ensure you don’t incur penalties for score damage.

If you’d like to talk through how we can support your bookkeeping, tax planning or complete accountancy services in Kent and the surrounding areas, just give us a call on 01732 387 059 or email . Let’s get ahead of deadlines together.

FAQs

Q1: What happens if I get a point under HMRC’s scheme?

A: A point doesn’t automatically mean a financial penalty, but if you collect enough in the tracking period, you may face a fixed charge plus an additional penalty.

Q2: Does every late VAT return get a point?

A: Almost late submission typically triggers a point unless you have previously agreed alternative filing arrangements or there are exceptional circumstances.

Q3: I’m a landlord with rental income under £50,000. Does MTD apply to me?

A: Not yet; the threshold is £50,000 from April 2026 and then £30,000 from April 2027. But you may still choose to adopt digital record-keeping earlier for peace of mind.

Q4: Can my accountant manage my MTD submissions entirely?

A: Yes, we can act as your agent and handle all submissions (software setup, quarterly updates, final declaration) so you focus on your business.

Q5: What software do I need for MTD for Income Tax?

A: HMRC-recognised software is required (cloud or bridging software). We’ll help you choose between Xero, Sage, QuickBooks, KashFlow, and others, whichever suits your business best.