HMRC is implementing a new point-based penalty system for late submission and payment of income tax, coinciding with the rollout of Making Tax Digital (MTD) for income tax.
Under the updated system, taxpayers who file their income tax returns annually will accumulate penalty points for each late submission. Once two points are reached, a £200 penalty will be charged. If another annual return is submitted late, an additional £200 fine will apply.
During the MTD income tax testing phase and for the 2026/27 tax year, one penalty point will be assigned for each late annual tax return. However, penalty points do not apply to late self-assessment returns for tax years before MTD income tax registration; those remain subject to existing late submission rules.
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Importantly, penalty points will not be issued for late quarterly updates during either the testing period or the 2026/27 tax year, as these quarterly updates are currently voluntary under the MTD system. A £200 penalty will be charged only when a taxpayer accumulates four points.
Penalty points reset to zero if all submissions are made on or before their due dates for the subsequent periods: 24 months for annual filers or 12 months for quarterly filers. Additionally, points will be cleared if all returns due within the past 24 months have been submitted to HMRC.
Craig Ogilvie, HMRC’s Making Tax Digital director, emphasizes that the new system aims to simplify tax affairs for sole traders and landlords while helping ensure accurate tax payments. He states, “A range of software is available and the system is straightforward and helps reduce errors.”