HM Revenue and Customs is set to overhaul its approach to tax compliance with the introduction of a new 'penalty points' system, scheduled for full implementation in April 2026. This significant change will replace the previous automatic fine structure for missed deadlines, marking a shift towards a more nuanced method of enforcement.
How the New Penalty Points System Will Operate
The system is designed to penalise persistent non-compliance rather than occasional missed obligations, according to HMRC. For quarterly tax submissions, taxpayers will incur a £200 fine once they accumulate four penalty points. Similarly, for annual submissions, reaching two penalty points will trigger the same £200 penalty.
Phased Rollout and Initial Trial
This month, HMRC will commence an initial trial of the new system with approximately 100 taxpayers as part of the broader Making Tax Digital scheme. The full rollout begins in April 2026, initially targeting sole traders and landlords with annual incomes exceeding £50,000.
Subsequently, the system will gradually expand to include those with lower income thresholds in the following years. HMRC has described the new framework as 'simpler and fairer', aiming to reduce the burden on those who make occasional errors while focusing on habitual defaulters.
Broader Context and Implementation Timeline
The move represents a significant evolution in HMRC's compliance strategy, aligning with the ongoing digital transformation of the UK's tax administration. Taxpayers are advised to familiarise themselves with the new requirements well in advance of the 2026 implementation date to avoid potential penalties.
This development follows recent controversies within HMRC, including a case where an HMRC worker was ordered to pay £20,000 after refusing to return to the office post-lockdown, highlighting the department's evolving operational landscape.
