HMRC’s New “Points Mean Prizes” (But Not the Kind You Want!) 🎯

Hello, tax adventurers! As your resident Chartered Accountant and lover of all things fiscal, I’m here to navigate you through the latest twists and turns in the HMRC landscape.

If you’ve been following the news, you’ll know that the old “flat-rate” penalty system is being retired in favor of something that looks suspiciously like a driving license penalty point system. It’s designed to be “fairer”—penalizing the serial procrastinators while giving the occasional “oops” a bit of a break.

But don’t let the friendly “points” name fool you; reach the threshold and you’ll find yourself with a £200 fine and a very grumpy accountant (me).

1. The “Points-Based” Penalty System: How It Works

HMRC is rolling this out to encourage regular digital reporting under Making Tax Digital (MTD). Instead of an immediate £100 fine for being one day late, you now accrue “points.”

• 1 Late Submission = 1 Point.

• Threshold Reached = £200 Fine.

• Every Late Submission after the threshold = Another £200 Fine.

The threshold depends on how often you are required to file. For those of you entering the 2026/27 tax year, here is your scorecard:

Penalty Thresholds by Filing Frequency

Pro Tip: Your points for VAT and Income Tax are kept in separate buckets. Being late with a VAT return won’t add points to your Income Tax record, and vice-versa! Check your status directly on the HMRC website.

2. The 2026/27 “Grace Period” 🕊️

HMRC knows that moving to MTD for Income Tax (ITSA) is a big jump for sole traders and landlords. If you have a qualifying income over £50,000, you are mandated to join from 6 April 2026.

The Good News: For the 2026/27 tax year, HMRC has confirmed a “soft landing.” Late submission penalties for the quarterly updates will generally not be charged in this first year. This gives you time to get your software talking to HMRC without the fear of instant points.

The Catch: This grace period usually only applies to the submission of the quarterly updates. Late payment penalties and interest still apply from Day 1. Don’t mistake a filing extension for a payment holiday!

3. Late Payment Penalties: The “Double Whammy” 💸

While submission points are about timeliness, payment penalties are about the money. This is where it gets expensive. Starting from the 2025/26 and 2026/27 years, the rates have tightened.

The Late Payment Escalation

[ Due Date ] -> Interest starts accruing immediately
      |
[ Day 16 ]  -> 3% Penalty on the balance
      |
[ Day 31 ]  -> Additional 3% Penalty (6% Total)
      |
[ Day 31+ ] -> Daily "Second Penalty" at 10% per annum

4. How to Avoid the “Trap” 🪤

The best way to stay out of the HMRC “Naughty Corner” is to be proactive.

1. Get MTD-Compatible Software: You can no longer rely on a shoebox of receipts. Use software that links directly to HMRC.

2. Set Up a “Time to Pay” (TTP) Arrangement: If you can’t pay, tell HMRC before the deadline. If a TTP is agreed within the first 15 days, you can often avoid the late payment penalties entirely.

3. The “Good Compliance” Reset: If you hit the threshold, you aren’t stuck there forever. If you file everything on time for a set period (e.g., 12 months for quarterly filers) and catch up on old returns, your points reset to zero.

The “I Forgot” Scenario 🤦‍♂️

Imagine “Landlord Larry.” Larry earns £55,000 in rent. In May 2026, he forgets his first MTD quarterly update.

• Old System: Immediate £100 fine.

• New System: 1 Point (but in 2026/27, the fine is waived).

• Result: Larry learns his lesson, buys some software, and doesn’t pay a penny in fines. Score: 1 – 0 to Larry.

Tax doesn’t have to be a horror story—it’s just about knowing the rules of the game!