Important Changes to HMRC Late Filing and Payment Penalties

HM Revenue and Customs are completely changing how they handle penalties for late tax submissions and payments. This new system is directly tied to the rollout of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA).

The old system of automatic, instant fines is being replaced. Instead, HMRC is switching to a new "points-based" system, designed to penalise persistent lateness while giving occasional mistakes a bit of breathing room.

How the Points System Works
Each time you miss a digital tax deadline, you will receive one penalty point. You will not face a financial penalty until you hit a specific points threshold. Once you reach that threshold, you will face an immediate £200 fine, plus another £200 for every subsequent late submission while your points remain high.

The rules treat quarterly updates and your annual tax return slightly differently:

• • Quarterly MTD Filers: If you are required to submit four quarterly updates, your penalty threshold is 4 points.
  • Annual Tax Returns: For your standard annual tax return (the Final Declaration), the penalty threshold is 2 points.
  • Points Accumulate Separately: Your quarterly points and annual submission points are kept in separate totals. Missing an annual deadline adds a point to your annual total, not your quarterly total.
  • Points Expiry: If you are below the threshold, points clear automatically after 24 months. If you hit the threshold, your slate will only be wiped clean after a set period of flawless, on-time compliance.

New Late Payment Penalties
Penalties for late tax payments will now be based entirely on how quickly you clear the balance:

• • 0 to 15 days late: No penalty.
  • 16 to 30 days late: A 3% penalty on the tax outstanding at day 15 (increasing to 4% for the 2027/28 tax year).
  • Exactly 30 days late: An additional 3% penalty is added, calculated on whatever amount is still outstanding on day 30 (also increasing to 4% for the 2027/28 tax year).
  • 31+ days late: A 10% annualised rate penalty starts. This is a separate penalty that calculates daily on your outstanding balance from day 31 onwards until the bill is fully paid.

Who is Affected and When?

The start dates depend on your total self-employed or rental income:

• • April 2026: Mandatory for sole traders and landlords with an income over £50,000.
  • April 2027: Mandatory for sole traders and landlords with an income over £30,000.
  • April 2028: Mandatory for sole traders and landlords with an income over £20,000.
  • Note: taxpayers who do not fit the above criteria are currently exempt from the MTD rules and will continue filing self-assessment income tax returns as they have in the past.
  • Soft Landing: For the taxpayers who are submitting during 2026/27 (those with an income over £50,000 or the volunteers), HMRC has introduced a temporary soft landing period. No penalty points will be issued for late quarterly updates during your first year of MTD.
  • The "Soft Landing" Traps: However, there are two traps with the soft landing rules that taxpayers need to bear in mind. Firstly, this concession does not apply to the annual return. If your annual return is late, you will receive a penalty point immediately. Secondly, HMRC have not made any specific statement regarding a soft landing for those taxpayers who start with MTD from April 2027 or beyond. We are currently operating under the assumption that there are no soft landing concessions for anyone from April 2027 onwards, those taxpayers would need to be fully compliant from day one.

We Are Here to Help
Transitioning to digital software and keeping track of multiple submission dates can be complicated and time-consuming. We can help you pick HMRC-compatible software, set up your digital record-keeping, and handle your submissions seamlessly to ensure you never pick up a penalty point.

We also advise clients to always have calendar reminders set up for their tax payment deadlines, so that they can avoid late payment penalties.

Check the official HMRC MTD Penalty Guidance or contact our team today to ensure your business is fully prepared and compliant.