HMRC plans to implement a new points-based system to replace automatic fines in a significant overhaul of the self-assessment tax process. Currently, taxpayers face an immediate £100 penalty for late submission of their self-assessment tax returns. Under the revised system, individuals will incur a £200 charge upon accumulating a specific number of points based on the frequency of their self-assessment submissions.
Participants in the existing self-assessment framework will receive a point for late tax return submissions. If they miss the deadline again within a two-year span, they will accrue another point and face a £200 penalty from HMRC. The introduction of Making Tax Digital, a digital platform set for wider implementation starting April 2026, will mandate sole traders and landlords with earnings exceeding £50,000 to adopt the new tax reporting mechanism.
With Making Tax Digital, taxpayers will be required to report their income quarterly. Failure to meet the deadline four times within two years will result in four points and a £200 fine. The Telegraph disclosed that the points system was recently initiated for 100 trial participants of Making Tax Digital, with plans for expansion to other self-assessment filers.
An HMRC spokesperson emphasized their commitment to assisting customers in accurate tax compliance to avoid penalties. The spokesperson highlighted the fairer penalty points system, noting that only Making Tax Digital users persistently missing deadlines will face financial repercussions. The gradual rollout of Making Tax Digital will extend to lower income thresholds, with the threshold decreasing to £30,000 from April 2027 and further to £20,000 from April 2028.
Currently, individuals with self-employed income below £20,000 are exempt from Making Tax Digital requirements. To adhere to Making Tax Digital regulations, compatible accounting software must be utilized. A range of third-party Making Tax Digital-compliant products are available on the GOV.UK website. The updated deadlines for Making Tax Digital compliance are provided for reference.