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New HMRC penalty system coming for late tax returns
The change is part of Making Tax Digital and will replace the current automatic late filing penalty
HMRC is rolling out a new penalty points system as part of the Making Tax Digital (MTD) transition.
Making Tax Digital involves keeping digital records of accounts and sending summaries to HMRC every three months, instead of filing one final return annually. As part of the transition the standard £100 late-filing fee will be replaced from April 2026.
The tax office is also changing the penalties taxpayers face when paying their tax late.
Here Which? explains the changes in full, and how it will affect taxpayers, and what you need to do now ahead of the changes.
What’s changing with HMRC fines?
Under the current rules, if you miss the 31 January self-assessment filing deadline, you’ll face an automatic £100 fine. This penalty can increase by £900 after three months (£10 a day), then another £300 after six months.
However, as part of the MTD changes, this will be replaced with a points-based system. Instead of an automatic £100 fine late filers will now rack up penalty points first.
Late payment penalties are also changing so that they are more proportionate to the length of time payment is outstanding, as well as the amount of tax due.
HMRC said the new penalty regime is intended to be ‘simpler and fairer than the previous system’. This is because it differentiates between one-off human errors and repeated non-compliance.
- Find out more: how to fill in a self-assessment tax return
How the new HMRC points system works
Under the new rules, you get one penalty point every time you miss a deadline. These points add up, and you only have to pay a fine once you reach a certain limit.
Instead of getting a £100 fine for filing your return late, you will now be charged £200 only after you have missed several deadlines and reached your point limit. Your limit depends on how often you send your tax returns:
- Annual filers (once a year): Two missed deadlines within two years will lead to a £200 fine.
- Quarterly filers (every three months): Four missed deadlines within two years will result in a £200 fine.
If you have not reached the penalty point threshold, after 24 months, HMRC will remove your individual penalty point automatically.
If you have reached the threshold for penalty points, you’ll need to take action to reset them to zero. The tax office says you can do this by completing a period of compliance.
- Find out more: Making Tax Digital: 4 questions answered
How are the late payment penalties changing?
When it comes to paying the tax owed late, this will continue on as penalties and will not use a points-based system. In your first year of new penalties, if your payment is more than 30 days late, HMRC will start to apply late payment penalties to you.
After your first year the normal rules will apply. This means if your payment is more than 15 days late, the tax office will start to apply late payment penalties.
From the first day your payment is late, until you pay in full, HMRC will charge late payment interest. This currently sits at 7.75% – the Bank of England’s base rate plus 4%.
| Timeframe | 2024-25 tax year (volunteer phase) | 2025-26 tax year onwards |
|---|---|---|
| Up to 15 days late | No penalty | No penalty |
| 16 to 30 days late | 2% of the tax owed at day 15 | 3% of the tax owed at day 15 |
| 31 days or more late | 2% of the balance at day 15 plus 2% of the balance at day 30 | 3% of the balance at day 15 plus 3% of the balance at day 30 |
| Ongoing penalty (applied daily from day 31) | 4% annual rate on the outstanding balance | 10% annual rate on the outstanding balance |
If you are unable to pay, you will need to contact HMRC as soon as possible and set up a Time to Pay arrangement. If a payment plan is agreed and taxpayers keep to that arrangement, the penalties will be paused.
- Find out more: late tax returns and penalties for mistakes
Who will be affected?
MTD for income tax is being introduced in stages and this will see certain taxpayers having to file returns four times a year instead of just once through self-assessment in January.
From April 2026, it will be mandatory for sole traders and landlords earning over £50,000 to file their self-assessment through MTD. The threshold will drop to £30,000 in 2027 and finally £20,000 in 2028.
To give people time to adjust, the new penalty points for quarterly updates will not be charged during the first year of the scheme.
HMRC said people who are not yet required to use MTD will also move to the new penalty system starting in April 2027. This means the new rules will apply to your 2027-28 tax return, with the earliest possible penalty point being issued in February 2029.
Any tax returns from earlier years (such as 2025-26 or 2026-27) will still follow the old penalty rules, even if you file them late after the new system has started.
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Get startedWhat taxpayers should do now
For most people, the advice remains the same – send your tax returns on time every time, and you will avoid any penalties.
However, the new system gives you a bit more breathing room if you make a one-off mistake, especially as HMRC updates its digital rules.
If you have to send reports every three months, it is very important to keep track of your dates. This way, you won't accidentally build up points without realising. While you only get the £200 fine after several missed deadlines, letting things slide could end up costing you more than the old £100 fine.
HMRC said: ‘We're committed to helping customers get their tax right to avoid fines altogether. Our fairer penalty points system for late returns will mean that only Making Tax Digital customers who persistently miss deadlines will incur a financial penalty.’
