HMRC’s New Points-Based Penalty System for 2026 Tax Returns

Starting in April 2026, HMRC is implementing a significant change to how late filings for Income Tax Self-Assessment (ITSA) are managed. The previous system of automatic fixed penalties for a single missed deadline is being replaced by a points-based regime designed to be more proportionate and fair.

This transition acknowledges the difference between an occasional oversight and persistent non-compliance. Under the new structure, taxpayers who miss a deadline infrequently may not face immediate financial sanctions, while those who are repeatedly late will face more acute consequences. This aligns the ITSA framework with the points-based VAT penalty system that has been operational for several years.

The incremental system creates clear thresholds regarding when penalty points become financial fines. Understanding these mechanics early is essential for avoiding unnecessary costs and maintaining accurate digital records.

How HMRC Penalty Points Work in Practice

The points-based system is straightforward once the mechanics are understood. HMRC refers to each missed deadline as a ‘submission obligation,’ which results in the accrual of one penalty point. It is important to note that points do not automatically trigger a fine.

Instead, HMRC uses a points threshold depending on how often you file:

• Annual filers: Threshold of 2 points
• Quarterly filers (Making Tax Digital): Threshold of 4 points
• Monthly filers: Threshold of 5 points

When a taxpayer reaches their specific limit, HMRC will automatically issue a £200 penalty. Each further late submission while at the threshold will incur an additional £200 fine. However, you do not continue to accrue points once the limit is reached. Financial penalties persist for every subsequent late filing until compliance is restored.

This structure ensures that minor, one-off lapses do not lead to immediate hardship, while persistent delays are addressed firmly. Consequently, maintaining a clear view of your submission deadlines and point status is now a priority for all taxpayers.

MTD ITSA Penalties 2026: The Initial Transition

The first year of Making Tax Digital (MTD) for ITSA includes specific provisions to aid the transition. HMRC has introduced a familiarisation period for the 2026/27 tax year, during which no penalty points will be issued for late quarterly updates.

It is important to be specific about the scope of this relief. This exemption only applies to quarterly updates. The final declaration, due by 31 January 2028, remains subject to the standard points-based penalties. Furthermore, late tax payments are not covered by this temporary relief. Taxpayers are still required to maintain digital records and submit updates throughout this period, even if points are not being tallied for quarterly delays in year one.

Late Payment Penalties: A Multi-Stage Approach

HMRC now treats late submissions and late payments as distinct issues. While missed filings accrue points, the late payment of tax incurs a graduated financial penalty.

Following a payment deadline, there is a 15-day grace period. If the tax is settled in full within this window, no penalty applies. After day 15, the charges escalate as follows:

• Day 16-30: A penalty of 2% on tax due as of day 15.

• Day 31+: An additional 2% on the balance at day 30, followed by a daily penalty rate until the liability is settled.

This approach is intended to encourage prompt payment while minimising the impact of short-term delays. It is worth noting that if you agree a ‘Time to Pay’ arrangement with HMRC within the first 15 days, these penalties can often be avoided entirely. Separating filing points from payment fines provides greater transparency regarding your compliance status.

Resetting the Compliance Record

A key feature of the new system is the Period of Compliance, which allows taxpayers to reset their record.

If a taxpayer has not yet reached the penalty threshold, individual points will naturally expire 24 months after they were recorded. This ensures that a single error from several years ago does not permanently affect your record.

If the threshold has been reached and penalties have been applied, resetting the points requires a more structured approach. Your total points will only be reset once the following conditions are met:

1. You complete a set period of compliance without any further late submissions (usually 12 months for quarterly filers).

2. You have filed all outstanding returns for the previous 24 months.

This ensures that habitual late filers must demonstrate a sustained period of compliance before their record is cleared.

Why Consistent Digital Bookkeeping Now Matters More Than Ever

HMRC’s points-based approach offers more fairness, but it also necessitates greater diligence in record-keeping. The most effective way to avoid points is through the use of professional bookkeeping and robust digital systems.

Automated records and scheduled reconciliations can be the difference between a compliant record and an unexpected £200 fine. At Braant, we provide professional oversight to ensure your digital records always meet HMRC standards and your deadlines are met.

Investing in reliable digital bookkeeping helps you avoid penalties before they occur. This allows you to focus on the core aspects of running your business with peace of mind.

If you have concerns regarding your points status or the transition to MTD ITSA, contact Braant. We provide practical guidance and bookkeeping solutions to ensure your business remains compliant and your finances are managed efficiently.