The HMRC penalty points system is replacing the automatic £100 fine for late tax returns, aiming to create a fairer and more consistent approach.

Instead of instant penalties, taxpayers will now receive points for each missed deadline. A financial penalty of £200 is only applied once a certain number of points is reached, depending on how often you file.

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What Is The New HMRC Penalty Points System And How Does It Work?

What Is The New HMRC Penalty Points System And How Does It Work

The HMRC penalty points system is a newly introduced structure to replace the long-standing automatic £100 fine that taxpayers used to receive for filing late tax returns. The primary aim of this change is to make the penalty process fairer and to distinguish between occasional mistakes and repeated non-compliance.

Under this new model, individuals and businesses will be issued penalty points each time they miss a filing deadline. These points are tracked in the background and do not result in a fine immediately.

However, once a taxpayer accumulates a specific number of points based on their filing frequency, a £200 penalty will be triggered.

The Key Difference From The Old £100 Fine Rule

Previously, even one late tax return would result in an instant £100 penalty. It didn’t matter whether it was your first time missing a deadline or if you had an otherwise clean compliance history.

That flat fine model was widely criticised as overly harsh, especially for taxpayers who had a valid reason for delay.

With the penalty points system, there is now a buffer that allows for the occasional slip without immediate financial punishment. This system is not only more forgiving but also more logical in recognising patterns of behaviour rather than single infractions.

When Does The System Apply And Who Is Affected?

The system is currently being piloted. As of January 2026, around 100 taxpayers have been selected to take part in the trial. These individuals are helping HMRC gather feedback before the full rollout.

Eventually, the new system will apply to:

This means if you fall into any of these categories, and you’re filing returns digitally, the new points system will become relevant to you very soon.

Why Has HMRC Replaced The £100 Automatic Fines?

Why Has HMRC Replaced The £100 Automatic Fines

The change has come about as part of a broader reform within HMRC to improve fairness and compliance under the Making Tax Digital (MTD) initiative.

The older £100 fine system was too blunt and did not take individual taxpayer behaviour into account. This led to numerous appeals, complaints, and inefficiencies within HMRC’s penalty handling operations.

HMRC’s Goal: A Fairer, Simpler System

According to an HMRC policy paper, the new system is designed to create a more “proportionate and consistent” penalty framework. The approach is intended to be more supportive for compliant taxpayers while cracking down on those who repeatedly miss deadlines.

One of the professionals involved in the digital tax transformation at HMRC shared a candid view with me:

“We’ve listened to feedback from tax agents and the public. The penalty model needed reform, and this points-based regime is part of a wider effort to focus on those who make repeated mistakes rather than those who miss a deadline once every few years. It’s not just about enforcement; it’s about encouraging better habits.”

How does this tie into Making Tax Digital (MTD)?

The new penalty system complements the broader goals of Making Tax Digital, which is aimed at bringing tax administration into the modern age.

By requiring taxpayers to keep digital records and submit returns through compatible software, MTD enables HMRC to track behaviour more closely and apply penalty points consistently.

The connection between digital submissions and penalty tracking is critical. With automated systems, HMRC can now issue points, alerts, and even warnings directly through taxpayers’ digital accounts, creating a transparent compliance journey.

How Are Penalty Points Issued And Calculated?

The system assigns one point for each missed deadline, whether it’s for income tax or VAT, and these points accumulate over time. The points do not automatically convert into fines but are tracked cumulatively until they reach a set threshold.

Here’s how points are issued and when they result in a financial penalty:

Type Of FilingWhen Points Are IssuedHow Many Points Before A Fine
Self AssessmentEach missed annual filing deadline2 points
VAT (Quarterly)Each missed quarterly filing4 points
VAT (Monthly)Each missed monthly return5 points

Taxpayers will receive notifications as they approach the penalty threshold. These warnings act as a prompt to stay compliant and avoid further points.

A key advantage of this model is that it allows room for genuine error. For example, if you typically submit VAT returns on time but miss one quarter due to an administrative oversight, you won’t be hit with a fine immediately. Instead, you’re encouraged to course-correct before reaching the penalty limit.

When Do Penalty Points Lead To A Financial Penalty?

Penalty points convert into financial penalties only once a taxpayer hits the relevant threshold based on their filing frequency. This makes the approach more measured than a one-size-fits-all fine.

Thresholds For Various Filing Frequencies

Below is a more detailed table outlining the thresholds and when a financial fine of £200 will be applied:

Filing FrequencyPoints ThresholdFinancial Penalty
Annual2 points£200
Quarterly4 points£200
Monthly5 points£200

This structure recognises that businesses filing more frequently have more deadlines and therefore more opportunities for errors. As a result, they’re allowed a higher threshold before fines apply.

Additionally, if a taxpayer continues missing deadlines even after reaching the threshold and paying a fine, each subsequent failure will result in another £200 fine until the behaviour is corrected.

What Does This Mean For Taxpayers Like Me?

What Does This Mean For Taxpayers Like Me

For individuals like myself and the clients I work with, the implications of this system are clear. It introduces a margin for human error, which is valuable, especially during challenging periods like end-of-year reporting or unexpected business disruptions.

As someone who manages a small consultancy, I’ve had moments where administrative tasks got delayed. Under the old system, a missed Self Assessment deadline meant an instant £100 fine, regardless of previous compliance. The new system acknowledges that mistakes happen and gives taxpayers a fair chance to make things right.

More importantly, this change encourages proactive behaviour:

These habits aren’t just good for avoiding fines, they also contribute to better overall financial management.

How Can I Avoid HMRC Penalty Points And Fines?

Avoiding penalty points is entirely achievable if you stay organised and proactive. HMRC has even suggested that most taxpayers will never reach a penalty if they file and pay on time consistently.

Here are a few practical ways to reduce your risk:

Digital Tools And Support From HMRC

With MTD now mandatory for many businesses, digital tools are no longer optional.

These platforms are equipped with features like:

By using compatible software, you’re more likely to avoid penalties simply because you’re operating in a more structured and automated environment.

What Are The Latest Updates On The Rollout In 2026?

The new penalty points system officially began rolling out in January 2026 as a live trial involving 100 individual taxpayers. These users were selected to provide feedback as part of the final stage of the MTD Self Assessment preparation.

The goal of this pilot is to:

According to published updates and media briefings, HMRC plans to analyse pilot results by the second quarter of 2026 before expanding the system to a broader user base. This ensures that bugs, system gaps, and reporting errors are ironed out before full implementation.

Is The New Penalty Regime Better Than The Old One?

Is The New Penalty Regime Better Than The Old One

While every system has its challenges, I believe this updated approach is a significant improvement over the previous model.

It rewards consistent compliance and gives taxpayers the opportunity to recover from occasional mistakes without immediate financial burden.

The flexibility built into the system is particularly important. For small business owners who handle their own taxes, the new model feels more tailored to reality.

I discussed this with another local accountant, and they agreed:

“The old fines were a punishment system. The new model is about changing behaviour. Clients now have time to adjust, and we can support them before things get serious.”

Of course, it still places the burden on us to keep accurate records and file on time. But if you’re already doing that, you’re unlikely to run into problems. The biggest winners in this new system are those who are usually compliant but simply needed a more understanding process.

What Should I Do If I Already Have Late Submission Fines?

If you’ve received fines under the previous regime, the penalty points system won’t automatically reverse or cancel those. However, there are steps you can take to address them if you believe they were unfairly issued or if you had a valid reason for missing the deadline.

ScenarioRecommended Action
First-Time Late SubmissionRequest cancellation via HMRC account
Reasonable Excuse (e.g. illness)Submit an appeal form with documentation
Ongoing compliance after fineMaintain record to avoid further points

You can appeal through your online tax account or by post.

Commonly accepted excuses include:

If HMRC accepts your appeal, they may withdraw the penalty and prevent the point from being added.

How Long Do HMRC Penalty Points Last?

Points do not stay on your record forever. HMRC has built in expiry rules to ensure that compliant taxpayers are not indefinitely punished for past mistakes.

Here’s how long points last depending on how often you submit returns:

Filing FrequencyPoint Expiry PeriodConditions For Expiry
Annual24 monthsNo additional missed deadlines
Quarterly12 monthsAll returns filed on time
Monthly6 monthsFull compliance during expiry window

It’s important to understand that the countdown begins only after your last penalty point was issued and if you have no further late submissions. This means staying compliant during the expiry period is key to clearing your record.

What If I Continue Missing Tax Return Deadlines?

If you continue to miss deadlines and fail to respond to HMRC warnings or previous penalties, the consequences will escalate. Once the points threshold is breached and a fine is issued, each additional missed deadline will trigger another £200 fine.

Continued non-compliance can also result in:

Eventually, HMRC may begin investigating your financial affairs more closely, especially if they suspect neglect or fraud. This could lead to more severe penalties and even criminal proceedings in the worst cases.

Conclusion

The HMRC penalty points system marks a shift towards a more balanced and fair approach to tax compliance. By focusing on repeated behaviour rather than isolated mistakes, it encourages consistency without punishing occasional slip-ups.

For individuals and businesses, staying organised and meeting deadlines is now more important than ever.

With digital tools and proper planning, it’s entirely possible to avoid penalties under the new system and maintain a clean compliance record. This reform supports a more practical and transparent tax environment.

FAQs About the HMRC Penalty Points System

How do I know if I’ve received a penalty point from HMRC?

You’ll receive a notification in your HMRC online account or by post informing you of the point and the reason for it.

Can I appeal against a penalty point?

Yes, you can appeal if you have a reasonable excuse, such as illness or a technical issue. Appeals are made through your HMRC account or in writing.

What happens if I switch from quarterly to annual filing?

Your penalty point threshold changes based on your current filing frequency. The points already incurred still apply but the new threshold will be lower or higher accordingly.

Are there additional penalties apart from the £200 fine?

If you continue to miss deadlines even after the fine, you may face further £200 penalties, interest, and even compliance checks.

Do points stack across different tax types?

Points are tracked per obligation, so Self Assessment and VAT have separate point systems. Missing deadlines in one doesn’t directly affect the other.

Will HMRC send reminders about deadlines and points?

Yes, HMRC issues automated reminders and notifications when you approach or exceed penalty point thresholds.

What tools can help me stay compliant with MTD deadlines?

Approved software like QuickBooks, Xero, or FreeAgent integrates with HMRC and helps automate tax return submissions.