In a significant reform of the UK's tax administration, HM Revenue and Customs (HMRC) is poised to abolish automatic financial penalties for late self-assessment submissions. Instead, a novel points-based system will be introduced, fundamentally altering how compliance is enforced for millions of taxpayers across the nation.
A Shift from Immediate Fines to Accumulated Points
The current framework mandates an instant £100 fine for any individual who fails to submit their self-assessment tax return by the stipulated deadline. This approach is set to be completely overhauled. Under the forthcoming regime, taxpayers will not face an immediate monetary penalty. Instead, they will accrue penalty points for each late submission.
Once a taxpayer reaches a specific threshold of points within a designated period, a single £200 fine will be levied. This represents a doubling of the potential penalty amount but introduces a crucial element of warning and cumulative non-compliance before any financial sanction is applied.
How the New Points System Will Operate
The mechanics of the points system are directly tied to an individual's filing obligations. For those currently within the self-assessment system, submitting a return after the deadline will result in one penalty point. If the taxpayer misses another deadline within a subsequent two-year window, they will receive an additional point and, critically, the £200 fine from HMRC.
This structure is designed to distinguish between occasional administrative oversights and persistent failure to meet tax obligations, targeting penalties more precisely at habitual late-filers.
Integration with the Making Tax Digital Rollout
This penalty reform is intrinsically linked to the broader rollout of HMRC's Making Tax Digital (MTD) initiative. MTD is a transformative digital system for record-keeping and reporting. From April 2026, the mandate will expand to encompass sole traders and landlords with an annual business or property income exceeding £50,000, requiring them to adopt the new digital reporting standards.
Under MTD rules, affected taxpayers will be obligated to report their earnings quarterly—four times a year. The points system will apply here as well. If a taxpayer using MTD misses four submission deadlines within a two-year span, they will accumulate four points and consequently face the £200 penalty.
Phased Implementation and Future Thresholds
The transition is already underway. Reports indicate that a pilot scheme involving 100 taxpayers within the MTD trial began implementing the points system this month, with a wider rollout to other self-assessment filers to follow.
An HMRC spokesperson emphasised the policy's intent, stating: “We’re committed to helping customers get their tax right to avoid fines altogether. Our fairer penalty points system for late returns will mean that only Making Tax Digital customers who persistently miss deadlines will incur a financial penalty.”
The scope of MTD is set to widen significantly in the coming years. The income threshold for mandatory participation will be lowered to £30,000 from April 2027, and further reduced to £20,000 from April 2028. Currently, those with self-employed income below £20,000 are exempt from MTD requirements.
Preparing for the Digital Transition
Compliance with Making Tax Digital necessitates the use of compatible accounting software. HMRC provides a recognised list of third-party software products that meet MTD standards on the official GOV.UK website.
For those entering the MTD regime, the new quarterly reporting deadlines are firmly established:
- August 7 for Quarter 1 (covering April 6 to July 5)
- November 7 for Quarter 2 (covering July 6 to October 5)
- February 7 for Quarter 3 (covering October 6 to January 5)
- May 7 for Quarter 4 (covering January 6 to April 5)
This comprehensive overhaul marks a pivotal moment in UK tax administration, shifting from punitive immediate fines to a graduated system that aims to encourage consistent digital compliance while imposing stricter penalties on those who repeatedly fail to meet their obligations.
