Understanding HMRC’s New Points-Based Penalty System
The UK tax system is undergoing a significant shift. HM Revenue & Customs (HMRC) has introduced a new points-based penalty regime that moves away from automatic fines for late submissions. Instead, it adopts a more flexible, cumulative approach, often compared to a driving licence points system.
The goal is simple: penalise persistent non-compliance rather than occasional mistakes.
How the New System Works
Under the new regime, late submissions no longer trigger immediate financial penalties. Instead, HMRC issues penalty points.
Each time you miss a submission deadline, you receive one penalty point. A financial penalty is only applied once you reach a certain threshold.
Points Thresholds
Annual submissions: 2 points
Quarterly submissions: 4 points
Monthly submissions: 5 points
Once you hit the threshold, you’ll receive a £200 fine.
Importantly, HMRC keeps separate points totals for different obligations. For example, your VAT submissions and Income Tax Self Assessment are tracked independently.
Do Points Expire?
Yes, penalty points don’t last forever.
Points expire after 2 years
To reset your total back to zero, you must complete a period of full compliance, meaning all submissions are made on time for a set period based on how often you file.
This structure rewards consistent, improved behaviour rather than punishing past mistakes indefinitely.
Implementation Timeline
The rollout of this system is already underway:
VAT
The points-based system replaced the previous VAT default surcharge regime in January 2023.
Making Tax Digital for Income Tax
HMRC is extending the system as part of Making Tax Digital:
From April 2026: Applies to individuals earning over £50,000
From April 2027: Applies to those earning over £30,000
There is also a “soft landing” period:
Between April 2026 and March 2027, no penalty points will be issued for late quarterly updates under MTD for Income Tax.
What About Late Payments?
The points system applies to submissions, but late payments are handled separately.
HMRC has introduced a staged penalty system:
First charge: Applied 30 days after the payment due date
Second charge: Accrues daily from day 31, based on the outstanding balance
How to Stay Compliant (A Simple Guide for Clients)
If you’re a client trying to navigate this new system, the good news is it’s manageable with a bit of structure. Here’s how to stay on track:
1. Know Your Deadlines
Make sure you understand how often you need to submit:
VAT returns (usually quarterly)
Income Tax updates under MTD (quarterly, if applicable)
Annual Self Assessment
Set calendar reminders well in advance, don’t rely on memory.
2. Track Your Submissions
Keep a simple checklist or use accounting software to track:
What’s been submitted
What’s due next
Missing just a few deadlines can quickly add up to penalty points.
3. Don’t Ignore a Late Submission
If you miss a deadline:
Submit as soon as possible
One late submission = one point, but delays won’t multiply the points for the same period
Acting quickly prevents further issues.
4. Stay Below the Threshold
The key is to avoid hitting the penalty trigger:
Occasional mistakes won’t cost you immediately
Repeated delays will
Think of it like speeding points, you can get away with one or two, but not a pattern.
5. Aim for a “Clean Record”
To reset your points to zero, you’ll need a period of full compliance.
That means:
Filing everything on time
Keeping consistent habits
This is your chance to wipe the slate clean.
6. Pay on Time Too
Submitting your return isn’t enough, you must also pay on time.
Late payments trigger separate penalties, so:
Plan ahead for tax bills
Set aside funds regularly if you’re self-employed
7. Speak to Your Accountant Early
If you’re unsure or falling behind, don’t wait.
JSB accountants can:
Help you meet deadlines
Submit on your behalf
Advise if you’re close to penalty thresholds
8. Appeal if You Have a Genuine Reason
If something unavoidable happens (e.g. illness, system issues), you can appeal.
HM Revenue & Customs will consider reasonable excuses, so don’t assume a penalty is final.
Final Thoughts
This new system is more forgiving, but only if you stay consistent.
It gives you breathing room for the occasional mistake, but repeated delays will still cost you. The safest approach is simple: stay organised, meet deadlines, and deal with issues early.
If you build good habits now, you’ll avoid both penalties and unnecessary stress later.
As a family-run company, we pride ourselves on providing a bespoke service tailored to your particular needs.
Above all, our objective is to save you time, money and effort in managing your accounts, leaving you free to focus on building your business.
Remember, you’re not alone, we’re always here to help if you have an accounts problem or query
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