HMRC is planning to substitute automatic fines with a fresh points-based system in a significant overhaul of the self-assessment tax process.
Currently, individuals face an immediate £100 penalty for late submission of their self-assessment tax returns. However, the upcoming system will implement a £200 charge after accumulating a specific number of points.
The new approach will consider the frequency of self-assessment submissions. Individuals on the existing self-assessment scheme will receive a point for late tax return submission.
Subsequently, if the deadline is missed again within a two-year span, another point will be added along with a £200 fine imposed by HMRC.
The implementation of Making Tax Digital, a digital system expanding to more taxpayers from April 2026, will mandate sole traders and landlords with an annual income exceeding £50,000 to adopt the new tax reporting platform.
Under Making Tax Digital, quarterly earnings reporting will be compulsory. Failure to meet the deadline four times within two years will result in four points and a £200 fine.
According to The Telegraph, the points system was recently introduced to 100 participants in a Making Tax Digital trial. This system is expected to be extended to other self-assessment filers.
An HMRC spokesperson emphasized the focus on assisting customers in accurate tax filing to avoid penalties. The revised penalty points structure aims to penalize Making Tax Digital users who persistently miss deadlines.
The gradual rollout of Making Tax Digital will encompass lower income thresholds, decreasing to £30,000 from April 2027 and further down to £20,000 from April 2028.
Currently, individuals with self-employed income below £20,000 are exempt from Making Tax Digital. To comply with the system, compatible accounting software must be utilized.
A variety of third-party Making Tax Digital-compliant products can be found on GOV.UK. The updated deadlines for Making Tax Digital compliance are provided on the official platform.
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