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Posted: 11 March 2026
The UK tax system is undergoing a major transformation as HMRC introduces Making Tax Digital (MTD) for Income Tax from April 2026. This requires rental property owners and sole traders to make quarterly submissions of income and expenditure if their turnover was at least £50,000 during the year ended 5 April 2025. Please see our earlier articles on MTD for further information on how MTD will affect you.
Another significant change relates to how penalties are applied for late submissions and tax payments.
From 6 April 2026, HMRC will begin moving away from the traditional Self-Assessment penalty structure and introduce a points-based system, designed to make the regime fairer while encouraging consistent compliance.
This article explains the current rules, the new system starting in 2026, and what taxpayers should do to avoid penalties.
The Current Self-Assessment Penalty System
Under the current Self-Assessment rules, penalties are triggered automatically once deadlines are missed. For example, if a taxpayer files their tax return late or pays their tax late, the following penalties apply:
• £100 fixed penalty immediately after the deadline;
• £10 per day penalty after 3 months (up to £900);
• 5% of tax overdue or £300 after 6 months (whichever is higher);
• Another 5% or £300 after 12 months.
The fixed penalty and daily penalties apply even if no tax is owed. The late payment penalties and interest are charged separately if the tax bill is not paid on time.
Key Changes from April 2026
1. Introduction of a Points-Based Penalty System
From April 2026, HMRC will begin introducing a penalty points system for late submissions as part of Making Tax Digital reforms.
Instead of issuing a fine immediately after a missed deadline, taxpayers will accumulate penalty points each time they submit late. A financial penalty is only issued once a threshold is reached.
For taxpayers filing annually, two penalty points will trigger a fine. For quarterly filers, 4 penalty points will trigger a fine.
Once the threshold is reached:
• A £200 penalty is applied;
• Each additional late submission results in another £200 penalty until compliance improves.
Penalty points will expire after 24 months, provided the threshold is not reached. This approach is intended to distinguish between occasional mistakes and persistent late filing.
2. A “Soft Landing” Period for Early Adopters
The new penalty system is tied to the rollout of MTD, so to help taxpayers adapt to the new digital reporting system, HMRC will implement a soft-landing period during the first year. During this period, penalty points will not be applied to the first four quarterly updates to give taxpayers time to familiarise themselves with the new reporting requirements.
However, the expectation is that taxpayers will transition to fully digital record-keeping and timely submissions from April 2027 when the new penalty regime will be expanded to all Income Tax Self-Assessment taxpayers.
3. Changes to Late Payment Penalties
In addition to late filing changes, HMRC is also tightening rules around late tax payments.
Under the revised structure the following penalties will apply:
• 3% penalty when tax is overdue by 15 days;
• Additional 3% when overdue by 30 days;
• 10% per annum charge accruing daily on amounts outstanding after 31 days.
How RJP Can Help You
With the new HMRC penalty regime approaching, it has never been more important to ensure your tax affairs are organised, compliant, and digitally ready. The move to MTD and the introduction of a points-based penalty system means that staying on top of your record-keeping and deadlines will be essential.
We work closely with self-employed individuals and landlords to make the transition to digital tax reporting as smooth as possible. Our services are designed to remove the stress of compliance and ensure you avoid unnecessary HMRC penalties.
We can help you:
• Maintain accurate digital records of your income and expenses throughout the year;
• Set up and implement MTD-compatible accounting software tailored to your business or property income;
• Manage your quarterly submissions to HMRC so deadlines are never missed;
• Plan ahead for tax payments, helping you avoid late payment penalties and unexpected tax bills.
Rather than worrying about the new rules, changing deadlines, and digital systems, you can focus on running your business while we handle the compliance.
If you’d like to discuss how the upcoming changes could affect you, please contact us via partners@rjp.co.uk.
