The new way HMRC punishes late submissions — not an instant fine for every slip, but points that build to a £200 charge once you cross a threshold.
Penalty points reform how HMRC punishes lateness. The old system fined you automatically for a single late submission; the points-based system, already live for VAT and arriving with Making Tax Digital for Income Tax, is more forgiving of the occasional slip but bites hard on repeat offenders. You collect a point for each late submission, and only when those points reach a threshold does a £200 penalty land.
The previous regime fined a single missed deadline the same as a habitual one, which felt disproportionate for an otherwise compliant business that slipped once. The points system separates the two behaviours. Genuine one-off lateness gathers a point that quietly expires; persistent lateness builds towards a penalty. With Making Tax Digital introducing quarterly reporting, the volume of submissions rises sharply, so a fairer, frequency-aware approach was needed.
The thresholds are tuned to filing frequency. The more often you are expected to file, the more points you are allowed before the penalty bites.
Each late submission adds one point. Below the threshold, individual points expire automatically after two years (measured from the month after the late submission), so an isolated slip clears itself. Once you hit the threshold, the rules tighten: points stop expiring automatically, the £200 penalty applies, and every subsequent late submission brings a further £200. To wipe the slate clean at that stage you must both submit all outstanding returns and complete a period of fully on-time submissions — 24 months for quarterly filers.
Take Owen, a sole trader reporting quarterly under MTD for Income Tax (threshold: 4 points). He misses four quarterly update deadlines across the period.
| Late submission | Points | Charge |
|---|---|---|
| Q1 update late | 1 | £0 |
| Q2 update late | 2 | £0 |
| Q3 update late | 3 | £0 |
| Q4 update late | 4 (threshold reached) | £200 |
| Next update late | stays at 4 | £200 |
Owen pays nothing for the first three slips, but the fourth crosses the threshold and triggers the £200 penalty. Any further late update while he remains at four points costs another £200 each time. To reset, he must file everything on time for 24 months. Note that late payment of the tax is charged separately — see the late filing and payment calculator.
Crucially, penalty points cover late submissions only. Paying your tax late is dealt with by a separate late-payment penalty and by daily interest — the points system does not touch them. So under MTD you can, in theory, be on time with payment but accruing points for late updates, or vice versa. Each quarterly update period is also assessed in its own right, which is why falling behind across several quarters is what drives you towards the threshold.
The shift to points rewards the consistently punctual and isolates the persistently late. One missed quarterly update under MTD is a learning moment; four is a £200 bill — and the meter keeps running until you string together two clean years.
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