HMRC plans to revamp the self-assessment tax system by replacing automatic fines with a new points-based penalty system. Currently, individuals face an immediate £100 fine for late submission of their tax returns. However, under the upcoming changes, a £200 penalty will be imposed once a certain number of points are accumulated based on the frequency of self-assessment submissions.
Participants in the existing self-assessment scheme will receive a point for late tax return filings. If a deadline is missed again within two years, another point will be added, triggering a £200 fine from HMRC. The transition to Making Tax Digital, a digital tax reporting system, will expand to include more individuals starting April 2026, targeting sole traders and landlords with an annual income exceeding £50,000.
Under the Making Tax Digital initiative, quarterly earnings reporting will be mandatory. Failure to meet deadlines four times within two years will result in four points and a £200 penalty. The Telegraph disclosed that a trial involving 100 taxpayers has already implemented the points system, set to extend to other self-assessment filers.
An HMRC spokesperson emphasized the focus on assisting customers in accurate tax compliance to avoid penalties. The revised penalty points system aims to penalize only Making Tax Digital users who consistently miss deadlines. The income threshold for Making Tax Digital inclusion is gradually decreasing, reaching £30,000 in April 2027 and eventually lowering to £20,000 by April 2028.
Individuals with self-employed income below £20,000 are currently exempt from Making Tax Digital requirements, but compliance necessitates the use of compatible accounting software. A range of third-party Making Tax Digital-compliant products are available on the GOV.UK website. Notably, updated deadlines for Making Tax Digital compliance are outlined on the platform.
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