HMRC will waive the charge for anyone who offers a "reasonable" excuse for being late, the Daily Telegraph reports citing a leaked internal memo from the government department, to prioritise larger scale tax investigations.
"We want to focus more and more of our resources on investigating major tax avoidance and evasion rather than penalising ordinary people who are trying to do the right thing," an HMRC spokesperson told the newspaper.
Those who missed the deadline - estimated to be 890,000 people this year - can appeal the £100 penalty which is automatically handed out. Those excuses offered will no longer be investigated by HMRC staff.
The process of deciding whether to accept the mitigating circumstances usually takes three weeks, however, HMRC will now accept the appeal without further question if it meets its criteria of reasonable excuses, such as the death of a partner, an unexpected hospital stay or postal delays.
According to the document, it's noted:
"Our penalty regime is intended to influence customer behaviour, but also be clear and cost effective, fair and proportionate. The current way of managing penalties does not meet these objectives, and so we have decided to take a more proportionate approach where a customer has filed their return late, and then appealed against their penalty ... This means that in the vast majority of cases we will be accepting the customer's grounds for appeal, and we can cancel the penalty."
The scaling down of minor infringements comes after HMRC has faced pressure from MPs over its handling of major tax investigations and particularly vocal criticism from Labour MP Margaret Hodge who chairs the Public Accounts Committee.
Hodge called HMRC "unacceptably slow" in the committee's report into the department's progress on improving tax compliance and preventing tax avoidance last year.
While individuals and small businesses will benefit from the changes, the spotlight has increasingly fallen on the tax practices of big businesses.
Chancellor George Osborne has promised to crackdown on avoidance and evasion with a so-called "Google Tax" aimed at preventing large corporations from diverting profits outside the UK in order to reduce their tax bill. It is part of wider international efforts to collaborate on tax reform.