HM Revenue and Customs (HMRC) is implementing a significant overhaul of its penalty system for late self-assessment tax returns, moving away from automatic financial penalties and introducing a new points-based approach. This fundamental change represents a shift in how the tax authority deals with compliance, aiming to target persistent offenders rather than those making occasional honest mistakes.
From Automatic Fines to a Points-Based Penalty Structure
Under the current system, taxpayers who submit their self-assessment returns after the deadline face an immediate £100 fine. This penalty applies automatically, regardless of whether any tax is actually owed. The new system, however, introduces a more nuanced method where each missed deadline results in a penalty point rather than an instant financial charge.
Fines will only be levied once an individual accumulates a predetermined threshold of points. For taxpayers who remain within the traditional self-assessment framework, missing two annual deadlines within a two-year period will trigger a substantial £200 penalty. This represents a doubling of the initial fine compared to the previous system.
Expert Analysis of the New HMRC Approach
Tax professionals have welcomed the changes as a more equitable alternative to the previous automatic penalty regime. Liam Coulter, Tax Director at Wilson Nesbitt, commented on the reform, stating: "This represents a fairer alternative to the automatic fines administered previously. The new system is specifically designed to penalise persistent offenders rather than those who have made honest mistakes or encountered genuine difficulties in meeting deadlines."
The implementation coincides with the broader rollout of Making Tax Digital, which comes into force for many self-employed individuals and landlords from April 6, 2026. Mr Coulter noted that this digital transformation brings additional administrative burdens, costs, and potential stress for taxpayers navigating the new requirements.
Appealing Automated Penalties: A Worthwhile Consideration
Accountancy practice UHY Hacker Young has highlighted the importance of challenging automated penalties when taxpayers believe they have reasonable grounds for appeal. The firm emphasised that many successful appeals demonstrate the value of contesting fines unless individuals are confident they are clearly in the wrong.
Neela Chuahan, Partner at UHY Hacker Young, explained the appeal process: "When you appeal, you have the opportunity to provide evidence and argue your case thoroughly. Given HMRC's track record with appeals, taxpayers are statistically more likely than not to successfully challenge and overturn an automatic penalty through proper representation."
She further cautioned that failing to appeal unjust penalties essentially means "unnecessarily giving extra money to the taxman" without proper justification.
Current Penalty Structure and HMRC's Position
Under existing rules, HMRC automatically imposes a £100 penalty for late submission of self-assessment tax returns, even when no tax is actually owed. Additional penalties accumulate progressively with continued delays. Late payment penalties begin at 5% of outstanding tax after 30 days, with further charges at six and twelve-month intervals, plus accumulating interest.
An HMRC spokesperson clarified the authority's position: "We remain committed to helping customers get their tax right and avoid penalties altogether. The penalty system serves to encourage compliance with legal obligations while acting as an appropriate sanction for those who repeatedly fail to meet their responsibilities."
The spokesperson added that "most automated penalties we issue each year are correct, with just one in every 140 requests leading to a formal review. However, when people can demonstrate a reasonable excuse, we will cancel the penalty accordingly."
This reformed approach reflects HMRC's evolving strategy to balance enforcement with fairness, recognising that not all late submissions result from deliberate non-compliance while maintaining consequences for habitual offenders.
