HMRC plans to implement a new points-based system to replace automatic fines in a significant overhaul of the self-assessment tax process. Currently, a £100 penalty is imposed for late submission of self-assessment tax returns. Under the updated approach, individuals will accrue points leading to a £200 charge after reaching a specified threshold.
The point accumulation will be linked to the frequency of required self-assessment submissions. Those under the existing system will receive a point for late tax return filing. If the deadline is missed again within two years, another point will be assigned along with a £200 fine from HMRC.
The introduction of Making Tax Digital involves the phased expansion of a digital reporting system, starting in April 2026. Sole traders and landlords earning over £50,000 annually will be mandated to utilize this new tax reporting platform.
Under the Making Tax Digital initiative, quarterly earnings reporting is compulsory. Missing four deadlines within two years will result in four points and a £200 penalty. The Telegraph disclosed that the points system was piloted this month with 100 taxpayers under Making Tax Digital, with plans to extend it to other self-assessment filers.
An HMRC spokesperson emphasized the aim to assist customers in accurate tax compliance to avoid fines. The revised penalty points structure ensures that only Making Tax Digital users consistently failing to meet deadlines will face financial penalties.
The Making Tax Digital criteria will gradually encompass lower income thresholds, reducing to £30,000 from April 2027 and further to £20,000 from April 2028. Currently, self-employed individuals earning under £20,000 are exempt from Making Tax Digital requirements, necessitating the use of compatible accounting software for compliance.
A range of third-party Making Tax Digital-compliant products is accessible on GOV.UK. The updated deadlines for Making Tax Digital compliance are provided on the platform.
