A major shift in tax penalty policies is coming, and it might leave you with a hefty fee! HMRC is introducing a points system that could cost you £200 for tax-related mistakes.
The UK's tax authority is taking a new approach to fines, moving away from automatic penalties. According to The Telegraph, HMRC will replace these fines with a points-based system, a change that has sparked both interest and concern among taxpayers.
Currently, self-employed individuals face an automatic £100 fine if they fail to submit their tax return by the annual deadline. However, this is about to change. The new points system will initially be tested with 100 taxpayers as part of the Making Tax Digital (MTD) trial, and if successful, it will be implemented more broadly.
But here's the catch: under this system, repeat offenders will face a larger one-time payment. The frequency of tax submissions will determine the penalty. For instance, those on the self-assessment system will receive a penalty point for missing their annual deadline. In contrast, those on the MTD system will submit earnings quarterly, and missing four deadlines in two years will result in a £200 fine and four penalty points.
The new system will also impact millions of taxpayers, who will now have to report their taxes four times a year instead of just once. Starting in April, sole traders and landlords with an annual income over £50,000 from self-employment and property will be required to use this system. By 2028, it will expand to include up to one million landlords and freelancers earning at least £20,000.
HMRC's Liam Coulter believes this change is fairer, targeting persistent offenders rather than those who make honest mistakes. However, some argue that the new system may still catch out those who struggle with the complexities of tax regulations.
HMRC has stated its commitment to helping taxpayers avoid fines altogether, emphasizing that only those who consistently miss deadlines under the MTD system will face financial penalties.
So, who needs to fill out a self-assessment tax return? If any of the following applied to you in the 2024/2025 tax year, you'll need to submit one: self-employment with income over £1,000; multiple income sources totaling over £1,000; savings, investments, or dividends earning over £10,000 before tax; claiming child benefit with a household income over £60,000; rental income or untaxed income exceeding £2,500; taxable income over £100,000; foreign income or residence; capital gains tax liability; trust income; state pension as the primary income source; or if HMRC notified you of underpaid taxes last year.
And there's a catch for self-employed individuals earning less than £1,000 too—they might still want to voluntarily pay 'class 2' national insurance contributions to maintain state pension and benefit entitlements.
What do you think? Is this points system a fairer approach, or does it add unnecessary complexity? Share your thoughts in the comments below!
