The UK tax system is set to undergo another significant change, with a new penalties regime being introduced for all income taxpayers in the coming years.
While many of these changes are linked to Making Tax Digital for Income Tax (MTD IT), the new rules will eventually apply to all self-assessment taxpayers, regardless of whether they fall within MTD.
Understanding The New Penalties Regime For Income Taxpayers
Announced as part of the Autumn Budget 2025, this updated system introduces a points-based approach to late submissions and tighter rules around late payments.
In this article, we’ll cover:
- When The New Penalties Regime Will Apply
- How The Points-Based Penalties System Works
- How To Reset Penalty Points
- Late Payment Penalties Under The New Rules
- What This Means For Income Taxpayers
When The New Penalties Regime Will Apply
The new penalties system will be introduced in stages, starting with those required to join Making Tax Digital for Income Tax.
The timeline is as follows:
- April 2026: Applies to taxpayers with qualifying income over £50,000
- April 2027: Extends to those with qualifying income over £30,000
- From April 2027: Applies to all income taxpayers, including those outside MTD IT
This means that even if you continue filing through the traditional Self Assessment system, you will still be affected by the new penalties regime.
How The Points-Based Penalties System Works
Under the new system introduced by HM Revenue & Customs, late submissions will no longer trigger immediate financial penalties. Instead, a points-based system will apply.
For taxpayers within MTD IT, this is particularly important as they will need to submit quarterly updates of income and expenses. The quarterly submission deadlines are:
- 7th August
- 7th November
- 7th February
- 7th May
Each missed deadline results in one penalty point. But when do penalties apply?
- MTD IT taxpayers: £200 penalty after 4 points
- Non-MTD taxpayers (annual filers): £200 penalty after 2 points
Once the threshold is reached, every additional late submission results in an immediate £200 penalty rather than further points.
How To Reset Penalty Points
Penalty points do not last forever, but clearing them depends on your compliance. If you remain below the penalty threshold, points will automatically expire after two years. If you reach the threshold and receive a penalty, you must complete a period of compliance to reset your points. This means:
- MTD IT taxpayers: Submit four quarterly updates on time
- Non-MTD taxpayers: Submit two annual returns on time
Only after meeting these conditions will your points return to zero.
Important: First-Year Transition Rules
There is some good news for those entering Making Tax Digital for Income Tax early.
For the 2026–27 tax year only, HMRC will not issue penalty points for late quarterly submissions. However, this applies only to that specific tax year, not to your personal first year in MTD.
For example:
- If you join MTD in 2026–27, you benefit from the soft landing period
- If you join later (e.g. 2027–28), penalty points apply immediately
This makes early preparation especially important to avoid penalties in future years.
Late Payment Penalties Under The New Rules
The changes don’t stop at late submissions – late payment penalties are also becoming stricter.
Under the current system, taxpayers have a 30-day grace period before penalties apply. This will be reduced to 15 days under the new regime.
The new penalty structure is as follows:
- Day 15: 3% of outstanding tax
- Day 30: Additional 3%
- Day 31 onwards: Daily penalty at 10% per annum
From April 2027, the initial penalties will increase from 3% to 4%. In addition to penalties, interest will be charged on overdue amounts.
What If You Can’t Pay On Time?
If you’re unable to pay your tax bill by the deadline, there are still options available. You may be able to set up a Time to Pay arrangement with HMRC, which allows you to spread payments over an agreed period. While this won’t stop interest from accruing, it can help you avoid late payment penalties.
What This Means For Income Taxpayers
The new penalties regime represents a clear shift towards stricter and more structured enforcement of tax deadlines.
Key takeaways include:
- Late submissions are tracked through a points system
- Penalties apply more consistently across all taxpayers
- Late payment rules are stricter and more costly
- Staying organised and meeting deadlines is essential
Whether you are within Making Tax Digital for Income Tax or not, these changes will affect how you manage your tax obligations.
How Digital Tax Matters Can Help
With the introduction of a new penalties regime and the continued rollout of Making Tax Digital, staying compliant is becoming more complex.
At Digital Tax Matters, our experienced accountants in Bedford specialise in digital accounting and MTD compliance. We’ve already successfully worked with HMRC’s MTD systems, so we understand exactly what’s required to keep you on track.
We can help you:
- Stay on top of filing deadlines
- Avoid penalty points and unnecessary fines
- Set up efficient digital record-keeping systems
- Arrange Time to Pay agreements if needed
If you’re unsure how the new penalty rules will affect you, or want to make sure you’re fully prepared, contact Digital Tax Matters today. We’ll help you stay compliant and avoid costly penalties.