The move could benefit thousands of contractors who are hit with penalties each year for falling behind with their monthly returns under the scheme.
Contractors are currently fined a minimum of £100 for a tax return not filed by the due date of the 19th of the month and a further £100 for every month their submissions are late.
After a year contractors can be hit with additional fines of up to £3,000.
Fines also increase depending on the number of subcontractors on a firm’s books with penalties quickly approaching the £10,000 mark.
The new regime will come into force next October and will limit annual fines to £3,000 for contractors filing their first set of returns.
HMRC said: “In many cases, the new penalties will be less than what would be charged now.”
One tax adviser told the Enquirer: “This is good news for most contractors because the current fine system has got out of hand with firms being hit with a barrage of penalties.”
For examples of how the new regime will affect you click here