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 tax returns. However, under the upcoming system, individuals will incur a £200 charge once they accumulate a specific number of points.
The points will be assigned based on the frequency of self-assessment submissions. Those under the existing self-assessment scheme will receive a point for late tax return submissions. If a taxpayer misses the deadline again within a two-year span, they will receive an additional point along with a £200 fine from HMRC.
The introduction of Making Tax Digital involves a digital platform expansion set to reach more individuals starting April 2026. Sole traders and landlords earning over £50,000 annually will be mandated to utilize this new tax reporting system.
Moving forward, taxpayers will be required to report their earnings quarterly under the Making Tax Digital initiative. Failure to meet deadlines four times within two years will result in four points and a £200 penalty.
According to reports from The Telegraph, a trial run of the points system was initiated this month for 100 taxpayers under Making Tax Digital. It is anticipated to be extended to other self-assessment filers.
An HMRC spokesperson emphasized the aim to assist customers in accurate tax reporting to avoid fines. The new penalty points system will ensure that only Making Tax Digital users persistently missing deadlines will face financial penalties.
The expansion of Making Tax Digital will gradually encompass lower income brackets, with the threshold lowering to £30,000 by April 2027 and further to £20,000 by April 2028. Currently, individuals earning less than £20,000 through self-employment are exempt from using Making Tax Digital and must utilize compatible accounting software to comply.
A selection of third-party Making Tax Digital-compliant products can be found on the GOV.UK website. Updated deadlines for Making Tax Digital compliance are available for reference.
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