HMRC is scrapping the old way of fining people for late tax submissions. Instead of hitting you with an immediate fine when you miss a deadline, they’re bringing in a points system that works a bit like driving license points.
This affects everyone who files tax returns – whether you’re self-employed, a landlord, or running a business. The changes are part of the wider Making Tax Digital (MTD) initiative which is already in-place for VAT.
Let’s break down what these changes mean for you, when they’ll kick in, and how to make sure you don’t end up with a stack of penalty points and fines.
The Days of Annual Tax Returns Are Numbered
If you’re used to filing one tax return each year, that’s about to change. Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) means you’ll soon need to:
- Keep your records digitally with approved software
- Send updates to HMRC every three months
- Submit a final declaration at the end of the tax year
This is rolling out in stages:
- From April 2026: If your business or property income is over £50,000
- From April 2027: If your income is over £30,000
- From April 2028: If your income is over £20,000
With more deadlines to meet, there are more chances to miss them – which is why it’s worth understanding the new penalty system now.
The quarterly reporting cycle means you’ll have four submission deadlines each year instead of just one, dramatically increasing the risk of missing a deadline if you’re not prepared.
How the MTD Penalty System Works
The new system gives you some leeway for occasional slip-ups while coming down harder on those who repeatedly miss deadlines. While this may change, and some elements of the system remain quite vague, the points system at least seems quite definitive at this stage.
Here’s how it works:
- You get one point each time you miss a submission deadline
- Under MTD for ITSA, you have two types of submissions: quarterly updates AND an annual final declaration
- Points add up until you reach a threshold of four points
- Once you hit that threshold, you’ll get a £200 fine
- Miss another deadline after reaching the threshold? That’s another £200 fine
For MTD for ITSA, the threshold is 4 points. You could reach this by missing any combination of submission deadlines – whether that’s four quarterly updates, three quarterly updates plus your final declaration, or some other combination.
Each missed deadline, regardless of type, earns you one penalty point.
Points Don’t Last Forever
Good news – penalty points have a two-year shelf life. If you haven’t reached the penalty threshold, your points will disappear after two years.
If you have reached the threshold and received a fine, you can reset your points to zero by:
- Meeting all your deadlines for 12 months (for quarterly filers)
- Submitting any outstanding returns from the previous 24 months
This gives you a clean slate and a fresh start with HMRC.
Late Payments: A Different Story
While missed submissions earn you points, late payments work differently. If you don’t pay your tax bill on time:
- No penalty if you pay within 15 days of the due date
- 3% penalty if paid between days 16 and 30
- Another 3% penalty (total 6%) if still unpaid after day 30
- From day 31, a daily penalty at 10% per year on any unpaid tax
On top of this, you’ll also pay interest on late payments at the Bank of England base rate plus 4%.
These can hit harder than submission penalties. Combining late submissions with late payments can cost you significantly.
A Gentler Start (Sort Of)
For the first 12 months of the new system, HMRC is being a bit more forgiving about late payments. You’ll have 30 days instead of 15 to pay your tax or set up a payment plan before facing penalties.
But this only applies to late payments – not late submissions. The points system for missed deadlines will apply in full from day one.
If You Have Multiple Businesses
If you run more than one business or have different income streams under MTD for ITSA, the rules get a bit more complex:
- You have a single points total covering all your businesses
- Missing the same type of deadline for multiple businesses in the same period only earns you one point
- But missing different types of deadlines (like a quarterly update for one business and a final declaration for another) could earn you multiple points
This means you need to be extra careful if you’re juggling multiple income sources.
Real Examples of How This Works
The new penalty system can seem abstract until you see how it might play out in real situations.
Here are three common scenarios that show how the points system works in practice and what consequences you might face.
Example 1: The Occasional Late Filer
John is a freelance designer who files quarterly under MTD. Over 18 months, he misses two deadlines and gets 2 penalty points.
Since this is below the 4-point threshold, he doesn’t get a fine, and these points will disappear after two years.
Example 2: The Persistent Late Filer
Sarah is a landlord who misses all four quarterly deadlines in her first year of MTD.
She hits the 4-point threshold and gets a £200 fine. When she misses another deadline the following quarter, she gets another £200 fine.
To clear her slate, Sarah needs to submit all outstanding returns and then meet every deadline for a full 12 months.
Example 3: With Late Payments
Tom runs a small consultancy business with an annual income of £60,000. In his first year of MTD for ITSA:
- He misses his first two quarterly submission deadlines, earning 2 penalty points
- He submits his third quarterly update on time, but forgets to pay the tax due
- 25 days after the payment deadline, he pays the outstanding amount
Tom now has 2 penalty points for his missed submissions (no financial penalty yet as he’s below the 4-point threshold). He also faces a 3% late payment penalty on the tax that was paid late, plus interest calculated at the Bank of England base rate plus 4%.
How to Stay on Top of the New System
With more deadlines to track, staying organised is key:
- Start using MTD software now: Don’t wait until the last minute to get familiar with digital record-keeping.
- Set up reminders: Mark all your quarterly deadlines in your calendar, with alerts well before they’re due.
- Little and often: Update your records weekly rather than scrambling at the end of each quarter.
- Plan for tax payments: Set aside money regularly so you can pay on time and avoid late payment penalties.
Getting these habits in place now will make things much easier when MTD becomes mandatory for your income level.
How Double Point Can Help
At Double Point, we’re already helping clients prepare for these changes. Our team of chartered accountants can:
- Help you choose and set up the right MTD-compatible software
- Create simple systems to keep your records updated
- Make sure you never miss a deadline
- Plan ahead for tax payments
- Deal with HMRC on your behalf if issues arise
The switch to MTD and quarterly reporting might seem daunting, but with the right support, it can actually give you better insight into your finances throughout the year.
Rather than leaving everything to the last minute, let’s work together to get systems in place that keep you penalty-free. Book a consultation with Double Point today, and we’ll help you get ready for the new digital tax system.
