Introduction
Her Majesty’s Revenue and Customs (HMRC) is implementing a significant change to its penalty regime for late tax returns from January 2026. This move, which will initially pilot with a small group of taxpayers, is part of the wider Making Tax Digital initiative.
The new system aims to promote tax compliance by replacing the longstanding immediate £100 late filing fine with a structured penalty points scheme. HMRC’s objective is to make the process fairer by penalising repeated non-compliance, while offering leniency to those who miss deadlines on rare occasions. The changes are designed to address concerns about the proportionality and fairness of penalties for individuals and businesses filing self-assessment tax returns.
Pilot Programme Launch
The initial roll-out of the penalty points system will be limited to 100 taxpayers. This trial is being conducted under the Making Tax Digital scheme, which is progressing towards digital record-keeping requirements for an increasing number of taxpayers.
The limited pilot will enable HMRC to assess the effectiveness of the new framework and make refinements ahead of the full-scale launch. Following the trial, the new system will be extended to all self-assessment taxpayers. HMRC has confirmed this staged approach to ensure a smooth transition and minimise disruption for those required to adopt digital tax administration.
System Structure and Thresholds
Under the redesigned structure, each missed self-assessment deadline results in the taxpayer accumulating a penalty point, rather than immediately incurring a financial penalty.
The accumulation of points triggers a fine only when a specified threshold is reached, which HMRC has stated will depend on the frequency of a taxpayer’s filing requirements. When the threshold is reached, the taxpayer will be subject to a £200 fine.
The new regime aims to more precisely target persistent non-compliance, encouraging taxpayers to meet deadlines while reducing penalties for occasional oversights.
Annual and Quarterly Submissions
For taxpayers who file returns on an annual basis, two missed deadlines within a two-year period will result in a £200 penalty. This marks a shift from the previous practice of an automatic fine for each late submission.
Taxpayers filing quarterly will be held to a different standard, with four missed deadlines within two years resulting in the same £200 fine. This stratified approach is intended to reflect the greater number of submissions required from quarterly filers, while maintaining a consistent incentive to comply with deadlines.
HMRC’s Objectives and Rationale
The points-based regime has been developed in response to feedback regarding the perceived rigidity and potential unfairness of the existing system. In a policy paper, HMRC stated: “The new penalty regime is simpler and fairer than the previous system. The new system will penalise those who persistently do not comply by missing filing and payment deadlines, while being more lenient on those who occasionally fail to meet obligations.”
An HMRC spokesperson commented further: “We're committed to helping customers get their tax right to avoid fines altogether. Our fairer penalty points system for late returns will mean that only Making Tax Digital customers who persistently miss deadlines will incur a financial penalty.”
Stakeholder Reactions and Expected Impact
The tax community has broadly welcomed efforts to tailor penalties to more accurately reflect patterns of compliance. According to reports, some professional bodies have argued that one-off mistakes should not attract significant fines.
The full impact of the changes is expected to be seen as the system moves beyond its pilot phase. The structured points threshold is designed to reduce the number of taxpayers fined for infrequent slips, while creating stronger deterrents for repeated non-compliance.
Final Summary
HMRC’s adoption of a penalty points system represents a significant step in tax administration reform. The move aligns with digital transition goals and responds to longstanding concerns over the fairness of the previous penalty regime.
By shifting towards a points threshold for fines, HMRC aims to focus enforcement on repeated non-compliance, while providing leniency for occasional lapses. Stakeholders will watch closely as the initial pilot progresses and the impact on taxpayers unfolds. For further support in managing tax obligations and compliance deadlines, explore resources available in the Pie app.
