HMRC plans to revamp the self-assessment tax system by replacing automatic fines with a new points-based penalty system. Currently, late submission of self-assessment tax returns incurs an immediate £100 fine. However, under the updated system, individuals will be fined £200 once they accrue a specific number of points based on their submission history.

The new penalty points will be assigned according to the frequency of required tax submissions. Those under the existing self-assessment scheme will earn a point for late tax return submissions. If the deadline is missed again within a two-year span, another point will be added along with a £200 fine from HMRC.

Starting April 2026, the Making Tax Digital initiative will expand to encompass more individuals. Sole traders and landlords with an annual income exceeding £50,000 will be mandated to utilize the new digital tax reporting platform.

Under Making Tax Digital, quarterly earnings reporting will be compulsory. Failure to meet deadlines four times within two years will result in four penalty points and a £200 fine. The Telegraph revealed that the points system has been piloted this month for 100 taxpayers in the Making Tax Digital trial and will be extended to other self-assessment filers.

An HMRC spokesperson emphasized the aim to assist customers in accurate tax reporting to avoid penalties. The revised penalty points system ensures that only Making Tax Digital users consistently missing deadlines will face financial consequences.

The gradual implementation of Making Tax Digital will encompass lower income thresholds, reducing to £30,000 in April 2027 and further to £20,000 in April 2028. Currently, individuals with self-employed income below £20,000 are exempt from Making Tax Digital but must adopt compatible accounting software for compliance.

A list of third-party Making Tax Digital-compliant software can be found on GOV.UK. The revised deadlines for Making Tax Digital compliance are detailed on the platform.