In a bid to curb abuse of the self-assessment system, HMRC will introduce a points-based penalty system.
Rather than keep the standard £100 fine for filing a self-assessment tax return late, HMRC will roll out the reformed system in 2026.
It's set to apply to self-assessment taxpayers with a business or property income above £50,000 a year - the same threshold for Making Tax Digital for income tax self-assessment.
The planned fines will be based on the length of time the tax payment is outstanding. According to HMRC, this change will only affect 5% of non-compliant taxpayers.
If a taxpayer misses a filing deadline, they will initially be given one point, with a financial penalty being charged once a certain number of points are accrued.
HMRC expects the reform to raise £155 million in penalties, according to the Budget Red Book issued in March 2023.
The aim of the new system is to penalise people who persistently go against HMRC compliance while being more lenient on those who make genuine mistakes.
A similar scheme was introduced in January 2023 for late submission of VAT returns.
An HMRC spokesperson said:
"We are reforming penalties so taxpayers who occasionally miss the filing deadline will not face financial penalties. Instead, we will focus on those who persistently miss filing and payment deadlines.
"We support all taxpayers to get their tax right, and through HMRC's extensive advertising and supportive approach, 95% of customers now pay their tax on time."
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