The HMRC penalty points system is a new approach to late tax return penalties that replaces automatic fines with a points based structure designed to target repeat offenders rather than one off mistakes.
Instead of receiving an immediate £100 fine for missing a deadline, taxpayers now receive penalty points that only trigger a fine once a set threshold is reached.
Key takeaways:
- Late tax returns now result in penalty points instead of instant fines
- A £200 fine applies only after repeated missed deadlines
- The system is linked to Making Tax Digital reporting rules
This change aims to make the UK tax penalty framework fairer and more proportionate.
What Is the HMRC Penalty Points System?
The HMRC penalty points system is a newly introduced method for handling missed tax submission deadlines.
Rather than issuing an automatic fine for every late return, HMRC now assigns penalty points each time a taxpayer fails to meet a filing deadline. A financial penalty is applied only when those points reach a specific limit.
This system is being introduced as part of a wider reform of how tax compliance is managed in the UK. It is currently being trialled with a limited group of taxpayers before being rolled out more broadly.
The key intention behind the change is to distinguish between taxpayers who occasionally miss deadlines and those who repeatedly fail to meet their obligations.
Under the previous approach, a single late submission could result in a fine regardless of the taxpayer’s history. The new framework instead focuses on patterns of behaviour over time.
HMRC has described the system as simpler and fairer, offering more flexibility while still discouraging ongoing non compliance. In practice, this means taxpayers are given more opportunity to correct mistakes before facing financial consequences.
How Does the New Penalty Points System Work?
The HMRC penalty points system works by assigning one point for each missed tax submission deadline. These points accumulate over time and only result in a fine once a defined threshold is reached.
The number of points required depends on how often the taxpayer is required to submit returns.
Key features of how the system operates include:
- One penalty point is issued for every missed deadline
- A £200 fine is charged once the threshold is reached
- Thresholds are linked to filing frequency
For taxpayers who submit annually, such as those using the traditional self assessment system, two missed deadlines within a two year period result in a £200 fine.
For those required to submit quarterly returns under Making Tax Digital, four missed deadlines within two years lead to the same fine.
This approach means occasional delays do not immediately result in a financial penalty. However, persistent failure to comply will still carry consequences. HMRC has stated that the aim is to encourage timely submissions while avoiding unnecessary penalties for genuine mistakes.
Who Will Be Affected by the HMRC Penalty Points System?
The HMRC penalty points system will primarily affect self employed individuals, freelancers and landlords who are required to file tax returns. Initially, the system is being tested with a small group of taxpayers as part of a Making Tax Digital trial.
From April 2026, landlords and self employed individuals earning more than £50,000 a year from self employment or property income will be required to follow the new digital reporting rules. This group will be among the first to fall fully under the penalty points system.
By 2028, the scope will widen further to include nearly one million additional landlords and freelancers earning at least £20,000 annually. Those earning below this threshold will continue using the existing self assessment process for the foreseeable future.
This phased rollout reflects HMRC’s intention to ease taxpayers into the new system gradually while managing the administrative transition across different income groups.
What Is Making Tax Digital and How Is It Linked?
Making Tax Digital (MTD) is a core part of the UK government’s plan to modernise the tax system, and it’s closely connected to the new HMRC penalty points regime. As more taxpayers are moved onto digital filing, HMRC has introduced this updated penalty structure to support ongoing compliance in a way that suits digital reporting.
Explanation of Making Tax Digital
MTD requires individuals and businesses to maintain digital records and submit tax data online. It aims to reduce errors and improve efficiency across the tax system. Rather than one annual submission, taxpayers will now provide regular updates on income and expenses using approved software.
This change reflects HMRC’s effort to bring greater transparency and automation to the tax process. It also forms the foundation of the new penalty model, which is designed to support accurate, timely submissions in a digital-first environment.
MTD Quarterly Reporting Requirement
Under Making Tax Digital, many self-employed workers, landlords, and small business owners will be required to submit their tax data every three months. These quarterly updates are intended to keep taxpayers on track and reduce last-minute errors at the end of the tax year.
However, this increase in reporting frequency also introduces new pressures. Liam Coulter, tax director at Wilson Nesbitt, acknowledged the challenges this presents, stating:
“Making Tax Digital comes into force for many self-employed individuals and landlords from April 6 2026, bringing in more administrative burden, cost and stress.”
As he noted, many will face a steep learning curve as they adapt to new digital tools and processes. The transition will require not only new systems but also a change in mindset about how tax is managed throughout the year.
Transition From Self-assessment to Digital Tax System
The move from annual self-assessment to more frequent digital updates is one of the biggest shifts in UK tax administration in decades. It will especially impact those with complex or multiple income sources, such as landlords and freelancers.
Recognising these challenges, HMRC has introduced a first-year penalty relief for new MTD users. This allows a grace period where penalty points will not be applied immediately, giving people time to adjust without financial pressure.
As Coulter added:
“HMRC has confirmed that first-year penalty relief will be available for late submissions, providing a welcome grace period and giving taxpayers time to learn the ropes without the immediate pressure of financial penalties.”
This balance between encouragement and enforcement reflects HMRC’s aim to support taxpayers during this significant transformation, helping them avoid penalties while learning to navigate the new system effectively.
Are There Any Exceptions or Grace Periods?
HMRC has introduced several safeguards to ensure taxpayers are not unfairly penalised during the transition period. Those involved in the initial trial were granted amnesty for late or missed returns until January of the trial year.
For taxpayers newly entering Making Tax Digital, HMRC has confirmed that penalty points will not apply during the first year of mandatory participation. This grace period is designed to give individuals and businesses time to understand new reporting requirements and digital systems.
These exceptions reflect HMRC’s recognition that adapting to quarterly reporting can be challenging. By offering temporary relief, the tax authority aims to reduce stress and encourage voluntary compliance rather than immediate enforcement. However, once the grace period ends, the standard penalty points rules will apply.
Why Is HMRC Changing to a Penalty Points Model?
The introduction of a points-based model by HMRC marks a significant change in how late filing penalties are enforced. This system moves away from the rigid structure of automatic fines and shifts towards a more behaviour-focused and proportionate approach to non-compliance.
Problems With the Old Fixed Fine System
The previous system applied a flat £100 fine for any missed tax return deadline, regardless of the taxpayer’s overall compliance history. This meant that a one-off oversight was treated with the same severity as repeat offences, which many saw as overly punitive and lacking flexibility.
HMRC’s Goal of Modernising Tax Compliance
In line with broader digital reforms, HMRC’s goal is to encourage consistent compliance by identifying patterns of behaviour rather than penalising isolated mistakes. The penalty points model is more adaptable and aligns with digital processes introduced through Making Tax Digital.
It offers a clearer framework that allows HMRC to focus its efforts on those who frequently fail to meet obligations, while providing breathing space to those who make the occasional error.
The shift is supported by many in the tax profession. Liam Coulter, tax director at Wilson Nesbitt, stated:
“HMRC’s change to a points-based system appears to be a fairer alternative to the automatic fines administered previously, with the new system designed to penalise persistent offenders rather than those who have made honest mistakes.”
Supporting those who make genuine mistakes
One of the key advantages of the new approach is its allowance for occasional lapses. Instead of imposing an immediate financial penalty, HMRC gives taxpayers time and opportunity to correct course before issuing a fine.
This system reflects a more balanced approach, one that acknowledges the reality of human error while still maintaining accountability for ongoing non-compliance.
Coulter’s comments highlight this benefit. By focusing on patterns of late submissions, the model offers a more reasonable way to encourage compliance while reducing pressure on honest taxpayers. Overall, it’s a modern solution that seeks to rebuild trust between HMRC and taxpayers through fairer enforcement.
How Can Taxpayers Avoid Penalty Points and Fines?
Avoiding penalty points under the new system requires awareness and organisation rather than complex changes. The most important step is understanding submission deadlines and reporting frequency.
Practical steps include:
- Submitting returns on time
- Using digital tools to track deadlines
- Responding promptly to HMRC communications
Taxpayers should also familiarise themselves with Making Tax Digital requirements well before they become mandatory. Keeping accurate records and planning ahead can significantly reduce the risk of missed submissions. HMRC has stated that it will continue to provide guidance and reminders to help taxpayers stay compliant.
HMRC Penalty Points vs Fixed Fines: What’s the Difference?
The introduction of the penalty points system marks a clear departure from the previous fixed fine approach. Understanding these differences helps taxpayers see how enforcement has evolved.
Comparison of Old and New Systems
The old system issued an immediate fine for each late submission. The new system allows points to accumulate before any financial penalty applies. This creates a more graduated response to non compliance.
Key Comparison Criteria
Criteria Old System New System
Trigger Single missed deadline Repeated missed deadlines
Frequency Annual focus Linked to filing frequency
Grace periods Limited First year relief available
Fine amount £100 per instance £200 after threshold
Under the new system, the emphasis is on patterns rather than isolated incidents. This change aims to balance accountability with fairness while supporting the shift to digital tax reporting.
What Happens If You Ignore the Points System?
Ignoring the penalty points system can lead to escalating consequences. While a single missed deadline may not result in a fine, repeated failures will eventually trigger financial penalties.
Potential outcomes include:
- Accumulation of penalty points
- A £200 fine once thresholds are reached
- Increased scrutiny from HMRC
Persistent non compliance may also damage a taxpayer’s compliance history, making future interactions with HMRC more complex. The system is designed to encourage early correction rather than prolonged avoidance.
Is the HMRC Penalty Points System a Step Forward?
The HMRC penalty points system represents a significant shift in tax enforcement philosophy. By focusing on behaviour over time, it aims to deliver fairer outcomes while still maintaining accountability.
For many taxpayers, the system offers reassurance that occasional mistakes will not result in immediate fines. At the same time, it reinforces the importance of meeting obligations consistently. When viewed alongside Making Tax Digital, the change reflects a broader effort to modernise the UK tax system and improve long term compliance.
Conclusion
The HMRC penalty points system replaces automatic fines with a more measured and behaviour based approach to late tax submissions. By linking penalties to repeated non compliance rather than single errors, it offers a fairer framework for taxpayers adjusting to new digital reporting requirements.
While the transition to Making Tax Digital introduces new responsibilities, safeguards such as grace periods and penalty relief provide valuable support. For UK taxpayers, understanding how the system works is essential to staying compliant and avoiding unnecessary fines as the new rules take effect.
FAQs About the HMRC Penalty Points System
How many penalty points lead to a fine under the new system?
A £200 fine is applied once a taxpayer reaches the set threshold of points based on their filing frequency. Annual filers and quarterly filers have different thresholds.
Who will be required to follow Making Tax Digital rules?
Landlords and self employed individuals earning over £50,000 will join from 2026, with those earning £20,000 included by 2028.
Will HMRC issue warnings before fines are applied?
HMRC issues penalty points first, giving taxpayers visibility before any financial penalty is triggered.
Do penalty points expire over time?
Points remain relevant within a defined period and are assessed based on missed deadlines over two years.
Are businesses affected by the penalty points system?
Yes, businesses and individuals required to file returns under Making Tax Digital are subject to the system.
Can penalty points be appealed?
Taxpayers can challenge penalties if they believe there is a valid reason for late submission.
How can digital tools help reduce penalties?
Digital software can track deadlines, maintain records and reduce the risk of missed submissions.
