The New HMRC Penalty Points System Explained: What It Means for Your Self Assessment Clients

Why HMRC replaced the automatic £100 fine

The old self-assessment penalty system had a straightforward flaw: it treated someone who missed a filing deadline for the first time in twenty years exactly the same as someone who consistently ignored HMRC. A single slip meant an automatic £100 fine. From the 6th of April 2026, that system is gone. ICAEW’s full technical guidance on the new MTD IT penalty regime explains the replacement in detail, but the core change is that HMRC has moved to a points-based system. This distinguishes between occasional late filers and persistent non-compliance. For accountants managing self-assessment portfolios, that distinction has practical implications for how you communicate deadlines to clients and what you do when one is missed.

HMRC charged £325 million in penalties for late self-assessment payments in a single year, and a significant proportion of them landed on people who were broadly compliant but had missed one deadline for legitimate reasons. The new system is designed to be more proportionate, but for persistent non-filers, it’s likely going to be more consequential.

How does the penalty points system work?

Each time a client misses a filing deadline, they receive one penalty point. Points accumulate over time, and a financial penalty is only triggered when the total reaches a threshold. Below the threshold, points act as a warning system rather than a direct financial sanction.

The thresholds vary by filing frequency:

Once the threshold is reached, the first financial penalty is £200. Each subsequent late submission after that triggers another £200 penalty until the client returns to full compliance.

How do penalty points expire, and what happens once the threshold is hit?

• Below the threshold: Points expire automatically after 24 months, provided the client is up to date with all submissions.

• At or above the threshold: Once a client has triggered a penalty, the 24-month automatic expiry stops. To clear the record, the client must meet a minimum compliance period. For annual filers, that means filing the next two returns on time consecutively. Only when both conditions are met does the points total reset to zero. For quarterly filers, the compliance period is four consecutive on-time submissions.

What is the soft landing period for MTD clients in 2026-27?

For sole traders and landlords who joined MTD IT in April 2026, HMRC has confirmed a soft landing for the first year. No penalty points will be awarded for late quarterly updates during the 2026/27 tax year. The quarterly updates still need to be submitted, but a late submission in year one won’t start the points clock.

This doesn’t extend to the final declaration. A late 2026/27 annual return can still attract penalty points. And from 2027/28 onwards, the full penalty points regime applies to both quarterly updates and the annual return.

What does this mean for how practices communicate deadlines to clients?

One late filing doesn’t automatically cost you money, but it starts a countdown, and the second one for annual filers does cost you money. Once you’ve been penalised, getting back to zero requires active effort.

Send reminders to clients ahead of deadlines with clear explanations of the new points system. Clients who understand how the points accrue and expire are far less likely to be caught out.

How does BrightTax by Bright help practices manage Self Assessment filing risk?

BrightTax by Bright gives practices a portfolio-wide view of Self Assessment filing status, upcoming deadlines, and submission history, making it straightforward to identify which clients are approaching their penalty threshold and which ones need a nudge before deadlines. For more on how the MTD IT submission workflow operates, see our guide to how Bright’s MTD solution works.

How does BrightTax by Bright compare to alternatives for self-assessment compliance?

The main alternatives for SA and MTD for ITSA compliance in the UK market are IRIS and TaxCalc,. IRIS is a long-established enterprise-grade platform with deep compliance functionality and a large UK practice user base. TaxCalc has a loyal following among smaller practices for its clear interface and competitive pricing.

On the other hand, BrightTax by Bright is designed for UK practices and connects with other products within the Bright suite, including BrightAccountsProduction and BrightManager for client data.

This content may have been developed with the assistance of AI tools. Content is reviewed by a member of the Bright team before publication. Guidance on legislation can be obtained from your industry body.