The Philosophy: “Points Mean Prizes” (But Not the Good Kind)
The new system operates a bit like penalty points on a driving licence. Instead of an immediate financial sting for a single late filing, you accumulate “points.” You only receive a financial penalty once you hit a specific threshold.
This is a significant win for the organized but occasionally overwhelmed business owner. If you miss a single deadline in a blue moon, you won’t be immediately out of pocket. However, if you consistently miss your filing windows, the costs will escalate quickly.
How the Points Thresholds Work
The number of points you can “afford” to accrue before a fine kicks in depends entirely on how often you are required to submit returns to HMRC. Under MTD for Income Tax, many businesses will move from one annual filing to quarterly updates, meaning more deadlines, and more opportunities to trip up.
Here is the breakdown of the point thresholds:
- Annual Filers (Self Assessment): 2-point threshold.
- Quarterly Filers (MTD for Income Tax & VAT): 4-point threshold.
- Monthly Filers: 5-point threshold.
Example: The Quarterly Filer
Imagine you are a landlord with a property portfolio earning over £50,000 a year. From April 6, 2026, you are required to submit quarterly updates. If you miss your first quarterly deadline, you get 1 point but no fine. If you miss the second, you have 2 points. Only once you miss your fourth deadline and hit that 4-point threshold will HMRC issue a £200 penalty.
Crucially, every missed deadline after you hit the threshold triggers another £200 fine. This makes consistent compliance non-negotiable for maintaining your profit margins.
The 2026 Timeline: Are You Ready?
This points-based system isn’t just a theoretical change; it is tied directly to the MTD for Income Tax roadmap. Mark these dates in your calendar:
- April 6, 2026: Mandatory for self-employed individuals and landlords with an income over £50,000.
- April 6, 2027: The threshold drops to £30,000.
- 2028 and beyond: The government has signaled further drops, potentially down to £20,000.
If you fall into these brackets, you will no longer just be filing once a year. You will be providing quarterly updates of your business income and expenses.
The “Soft Landing” Period: A Breathing Space
HMRC recognizes that transitioning to MTD for Income Tax is a massive operational shift for the UK’s small business community. To help you adjust, they are introducing a soft landing period.
During the first year of the new system (2026-27), HMRC will not charge penalty points for late quarterly updates. This gives you four “free” quarters to get your digital record-keeping in order and ensure your software is communicating correctly with HMRC’s systems.
Note: This soft landing usually only applies to the points. If you fail to pay the tax you owe, the rules are much stricter.
Resetting the Clock: How to Clear Your Points
Points don’t stay on your record forever, but clearing them requires a period of perfect compliance. There are two ways your points total can return to zero:
1. The Time-Based Expiry
If you are below the threshold (e.g., you have 2 points but your threshold is 4), those points will naturally expire after 24 months. This is counted from the month after the one in which you received the point.
2. The Compliance Reset
If you have hit the threshold and incurred a £200 fine, the points don’t just disappear. To reset them to zero, you must meet two strict conditions:
- A Period of Compliance: You must submit all your required returns on time for a set period (12 months for quarterly filers).
- Backlog Clearance: You must ensure all returns due within the last 24 months have been submitted.
Failure to meet these conditions means you remain “at the threshold,” and every single subsequent late filing will result in another £200 fine.
Late Payment Penalties: A Different Beast
It is vital to distinguish between late filing (points-based) and late payment (percentage-based). HMRC has not moved late payments to a points system. If you owe tax and don’t pay it on time, you will still face immediate financial consequences:
- Up to 15 days late: No penalty if you pay in full.
- 15 to 90 days late: 5% of the tax due.
- 6 to 12 months late: Additional 5% of the tax due (total 10%).
- Over 12 months late: Additional 5% of the tax due (total 15%).
How Sterlinx Global Keeps Your Record Clean
At Sterlinx Global, our tax compliance service is specifically designed to help you navigate the new points system with confidence. Here’s how we support you:
- Calendar Management: We maintain a detailed compliance calendar to ensure no deadlines slip through the cracks.
- Quarterly Preparation: For MTD for Income Tax clients, we help you compile your quarterly updates in advance, reducing the risk of last-minute scrambles.
- Soft Landing Maximization: We ensure you use the 2026-27 soft landing period to establish robust digital processes.
- Points Monitoring: We track your points total and alert you before you approach the threshold.
- Compliance Resets: If you do hit the threshold, we implement a structured compliance recovery plan to reset your points to zero.
Action Checklist for 2026 Compliance
- Check Your Income Threshold: Will you exceed £50,000 in 2025-26? If so, MTD for Income Tax is mandatory from April 6, 2026.
- Select Your MTD Software: Choose HMRC-approved software and test it well before the April 2026 deadline.
- Review Your Current Compliance Record: Do you have any outstanding returns or missed deadlines? Clear these before the new regime begins.
- Set Quarterly Reminders: If you become a quarterly filer, establish a strict routine for your updates.
- Understand Your Threshold: Know exactly how many points you can accrue before a £200 fine is triggered.
- Plan for Tax Payment Deadlines: Remember, late payments carry immediate percentage-based penalties, not points.
- Speak to Your Accountant: Engage with a tax professional who understands the nuances of the new points system.
Frequently Asked Questions
Will I get points for VAT late filings too?
Yes. The points-based system applies to both Income Tax Self Assessment and VAT. If you file both quarterly VAT returns and quarterly income tax updates, you could be earning points on both sets of deadlines. Your threshold remains the same (e.g., 4 points for a quarterly filer), so the combined exposure is significant.
What happens if I have a “reasonable excuse” for being late?
HMRC recognizes certain circumstances as reasonable excuses (e.g., serious illness, death in the family, or a genuine technical failure on HMRC’s part). If you can evidence a reasonable excuse, you may be able to appeal and have points removed. However, “being busy” or “forgetting” are not reasonable excuses. You will need documented proof.
Is the £200 fine per point?
No. The £200 fine is triggered once you hit the threshold (e.g., 4 points for a quarterly filer). Every missed deadline after that point results in another £200 fine. So if you hit 4 points and miss your next quarterly deadline, you get another £200. It is per late filing once the threshold is breached, not per point.
Can I see how many points I have?
HMRC will notify you when you receive points and when you approach or reach your threshold. However, you can log into your HMRC digital account to check your compliance record. Sterlinx Global also tracks this for our clients as part of our compliance monitoring service.
