HM Revenue and Customs (HMRC) has revamped its penalty system under the Making Tax Digital for Income Tax initiative, moving away from immediate £200 fines for missed deadlines. Instead, the new approach uses a points-based system designed to be fairer to UK taxpayers, especially those who make occasional submission errors.
Under this new system, each missed deadline—whether for submitting a quarterly update or a tax return—earns a penalty point rather than an automatic financial penalty. This means taxpayers won’t be fined for a one-time late submission. Financial penalties only apply if you repeatedly miss deadlines, accumulating enough penalty points to hit the threshold.
HMRC explains that these penalty points are tracked separately for Income Tax Self Assessment and VAT registrations. For Income Tax Self Assessment, once you reach two penalty points, you will incur a £200 fine. If you continue to miss deadlines after reaching this threshold, further £200 penalties will apply for additional late submissions.
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Importantly, HMRC will automatically remove individual penalty points after 24 months, provided you do not reach the penalty point threshold. If you do reach the threshold, you must complete a “period of compliance” to reset the points to zero. For volunteers using Making Tax Digital for Income Tax, this requires submitting the next two tax returns on time over a 24-month period.
Additionally, there are no late submission penalties for quarterly updates while you are volunteering with Making Tax Digital for Income Tax. This points-based system emphasizes encouraging timely submissions while providing leniency to occasional late filers.