HMRC is planning to introduce a new points-based system to replace automatic fines in a significant overhaul of the self-assessment tax process. Currently, individuals face an immediate £100 penalty for late submission of their self-assessment tax returns. However, the upcoming changes will see a shift to a £200 charge upon accumulating a set number of points.
The points allocation will be linked to the frequency of required self-assessment submissions. Those currently under the self-assessment scheme will receive a point for late tax return submissions. If the deadline is missed again within a two-year span, another point will be added along with a £200 fine from HMRC.
The implementation of Making Tax Digital, a new digital system set to expand to a wider audience starting April 2026, will mandate sole traders and landlords with incomes exceeding £50,000 to adopt the new tax reporting platform. Under this system, quarterly earnings reporting will be compulsory. Failure to meet the deadlines four times within two years will result in four points and a £200 penalty.
According to The Telegraph, the points system has been piloted this month with 100 taxpayers participating in the Making Tax Digital trial. It is anticipated to be extended to other self-assessment filers in the future. An HMRC spokesperson emphasized the intention to assist taxpayers in accurate tax reporting to avoid fines entirely. The new penalty points system aims to penalize only Making Tax Digital users who consistently miss submission deadlines.
The gradual rollout of Making Tax Digital will also affect lower income brackets, with the threshold reducing to £30,000 from April 2027 and further down to £20,000 from April 2028. Presently, individuals earning less than £20,000 from self-employment are exempt from the Making Tax Digital requirements. To comply with the system, compatible accounting software must be utilized.
A list of third-party Making Tax Digital-compliant products can be found on GOV.UK. The revised deadlines for Making Tax Digital compliance are available on the official platform.