HM Revenue and Customs (HMRC) is implementing a significant change to its penalty regime, moving away from automatic fines for late tax returns towards a new points-based system. This shift represents a fundamental overhaul in how the tax authority handles compliance, with the Labour Party government's tax arm leading the initiative.
A Fairer Approach to Tax Penalties
The traditional system of imposing an immediate £100 fine for missed self-assessment deadlines is being phased out. In its place, HMRC will introduce a penalty points mechanism designed to distinguish between occasional errors and persistent non-compliance. Taxpayers who miss filing deadlines will now receive penalty points rather than an instant financial penalty.
Only when taxpayers accumulate points beyond a specific threshold will they face a £200 charge. This graduated approach aims to provide greater fairness, particularly for those who make genuine mistakes rather than deliberately avoid their tax obligations.
Initial Trial and Wider Rollout
The points system will launch this month with a controlled trial involving 100 taxpayers participating in the Making Tax Digital programme. Following this initial phase, HMRC plans to extend the system to all individuals required to file tax returns, marking a comprehensive transformation of penalty enforcement across the UK tax system.
An HMRC spokesperson emphasised the organisation's commitment to supporting taxpayers, stating: "We're dedicated to helping customers get their tax right to prevent fines entirely. Our more equitable penalty points system for late returns ensures that only Making Tax Digital customers who consistently miss deadlines will face financial penalties."
Expert Analysis of the Changes
Liam Coulter, Tax Director at Wilson Nesbitt, welcomed the new approach, commenting: "HMRC's transition to a points-based system appears to be a more balanced alternative to the automatic fines previously administered. The revised system targets persistent offenders rather than penalising those who commit honest errors."
Mr Coulter further noted the broader context of tax digitisation, adding: "Making Tax Digital becomes mandatory for numerous self-employed individuals and landlords from April 6, 2026, introducing additional administrative responsibilities, costs, and potential stress. This represents a substantial learning curve, with taxpayers expected to adapt to new technology, quarterly reporting requirements, and the pressure of avoiding mistakes."
Support Measures for Taxpayers
Recognising the challenges of this transition, HMRC has confirmed that first-year penalty relief will be available for late submissions under the Making Tax Digital framework. This grace period offers taxpayers valuable time to familiarise themselves with new systems without facing immediate financial consequences for initial errors.
The implementation timeline for Making Tax Digital for Income Tax varies according to qualifying income thresholds:
- For the 2024 to 2025 tax year, individuals with qualifying income exceeding £50,000 must adopt the system from 6 April 2026
- For the 2025 to 2026 tax year, the threshold reduces to £30,000, requiring compliance from 6 April 2027
- For the 2026 to 2027 tax year, government plans indicate legislation to lower the qualifying income threshold further to £20,000
This structured rollout aims to gradually incorporate different income groups into the digital tax system while providing adequate preparation time for each cohort.
