HMRC Introduces New £200 Penalty Under Points-Based Tax System
HMRC's New £200 Penalty Points System for Late Taxpayers

HMRC Introduces New £200 Penalty Under Points-Based Tax System

Households across the UK have been put on high alert as HM Revenue and Customs (HMRC) rolls out a new £200 charge, marking a significant shift in how late tax payments are penalised. This change is part of the broader Making Tax Digital initiative, which aims to modernise the way individuals file their self-assessment tax returns in the coming years.

Replacing the Old Automatic Fines

Under the previous system, taxpayers who missed the annual January 31 deadline faced an automatic £100 fine. This penalty would escalate dramatically over time, increasing by £900 after three months (at a rate of £10 per day) and then by an additional £300 after six months. However, HMRC is now phasing out this approach in favour of a new points-based penalty system.

How the New Points System Works

The new framework, which HMRC describes as "fairer and simpler," involves accumulating penalty points for each missed deadline before any fines are imposed. The threshold for triggering a penalty varies based on how frequently you file tax returns:

  • For annual filers, a £200 fine is applied only after missing two deadlines within a two-year period.
  • For quarterly filers, you must miss four deadlines within two years to incur the same £200 penalty.

Penalty points can be reset to zero if you avoid reaching your threshold for 24 months, at which point HMRC will automatically remove them. This system is designed to provide more clarity and consistency for taxpayers who occasionally fall behind.

Late Payment Penalties Also Increased

In addition to the points-based system, HMRC has also revised the penalties for late payments. Taxpayers now have a 15-day grace period to settle overdue taxes without facing a fine. After that, the penalties become steeper:

  1. For payments 16 to 30 days late, the penalty is 3% of the tax owed, up from the previous 2%.
  2. For payments 31 days or more late, the penalty includes 3% of the balance at day 15 plus 3% at day 30.
  3. The most significant increase is in the ongoing penalty applied daily after day 31, which has jumped from an annual rate of 4% to 10% on the outstanding balance.

Options for Those Struggling to Pay

HMRC emphasises that taxpayers who are unable to meet their obligations should contact the office to set up a Time to Pay arrangement. If an agreement is reached and deadlines are honoured, penalties will be paused, providing a lifeline for those facing financial difficulties.

This overhaul is part of HMRC's ongoing efforts to streamline tax compliance and ensure that penalties are more proportionate and understandable for all households. As the Making Tax Digital project continues to evolve, taxpayers are advised to stay informed about these changes to avoid unexpected charges.