HMRC Penalties: The New Points System Explained

HMRC has overhauled its penalty system for late filing and late payment. The old system of automatic fixed penalties is being replaced with a points-based approach that is designed to be fairer but no less costly for persistent offenders. Understanding how it works is essential for anyone who files Self Assessment returns or MTD quarterly updates.

Under the old system, a single day late on your Self Assessment return triggered an automatic £100 penalty. After three months, you faced daily penalties of £10 for up to 90 days. After six months, an additional penalty of 5% of the tax due or £300, whichever was greater. After twelve months, a further penalty of the same amount. The system was criticised for being disproportionate — someone who was genuinely one day late faced the same £100 penalty as someone who was three months late.

The new points-based system works differently for late filing. Each time you miss a submission deadline, you receive one penalty point. This applies to quarterly MTD updates as well as annual returns. Once you reach the penalty threshold, you receive a £200 financial penalty. The threshold depends on how frequently you are required to submit — for quarterly submissions under MTD, the threshold is four points. For annual submissions, it is two points.

Once you have hit the threshold, every subsequent late submission attracts an additional £200 penalty. There is no grace period and no cap on the number of additional penalties. If you are consistently late with quarterly submissions, you could easily accumulate penalties of £1,000 or more in a single year.

Points can be removed, but only through a period of compliance. You need to submit on time for 24 months after reaching the threshold to reset your points to zero. For quarterly submissions, that means 24 consecutive months without a late filing. During this period, any late submission resets the clock. It is deliberately designed to reward sustained compliance, not occasional good behaviour.

Late payment penalties work on a separate system based on the amount outstanding and how long it has been overdue. If your payment is between 1 and 15 days late, no penalty is charged — this is a grace period. Between 16 and 30 days late, a penalty of 2% of the outstanding amount is charged. After 30 days, an additional 2% is charged. From day 31 onwards, an annualised penalty of 4% applies on the remaining balance until it is paid. Interest on the outstanding amount runs from day one, compounding daily.

The practical impact is that someone who owes £5,000 and pays 45 days late would face: 2% on £5,000 (£100) for the 16-30 day period, plus 2% on £5,000 (£100) at day 30, plus daily interest at the prevailing rate. That is £200 in penalties plus interest, which is significant but more proportionate than the old system's fixed penalties.

For MTD specifically, the quarterly filing cadence means you have four opportunities per year to accumulate points. A taxpayer who is disorganised enough to miss all four quarterly submissions in their first year would hit the four-point threshold and then face £200 penalties for each subsequent miss. Combined with late payment penalties on any tax due, the costs of non-compliance stack up rapidly.

The defence against this is obvious: file on time, every time. Use software like Accounted that tracks your deadlines and automates your submissions. Set up reminders well in advance of each deadline. If you use an accountant, confirm exactly who is responsible for each submission and when it needs to happen.

If you have a genuine reasonable excuse for a late submission — serious illness, bereavement, HMRC system failures, or other circumstances beyond your control — you can appeal a penalty point. But the excuse must be genuine and well-documented. Being busy, forgetting, or not having your records ready are not reasonable excuses.

The new system is fairer in principle — occasional genuine lateness does not immediately attract a financial penalty. But it is unforgiving to persistent offenders. If you are the kind of taxpayer who habitually files late, the new system will cost you more, not less, than the old one.