Tax penalties under Making Tax Digital for Income Tax

For those taxpayers who are impacted by MTD, digital records of business income and expenses must be kept from 6 April 2026, and these records are sent to HMRC as quarterly updates. The quarters and their due dates are as follows:

This means for example that for an individual who must use MTD for Income Tax in respect of the 2026/27 tax year, the first quarterly update is due by 7 August 2026. The date range covered is deliberately cumulative, allowing individuals to correct the position from 6 April with each quarterly submission. Taxpayers can elect to change the date range to be in line with the calendar year as opposed to the tax year and months (i.e. the year would begin from 1 April instead of 6 April), but the filing deadlines remain unimpacted.

The final self assessment tax return is still due by 31 January each year. For 2025/26, the self assessment tax return should be submitted in the normal way by 31 January 2027. For 2026/27, the annual tax return will need to be submitted via MTD for Income Tax-compliant software.

The payment dates will continue to be 31 January and 31 July i.e. there is no impact to when you actually have to pay the income tax due to HMRC. At present, it is simply a new record-keeping and filing requirement.

For those who are required to join MTD for Income Tax for the 2026/27 tax year, there is a ‘soft landing’ whereby HMRC will not charge penalties for late filing of quarterly updates in that tax year only. Any taxpayer required to join MTD for Income Tax in a later period where the threshold for qualifying income is lower will not have a years’ grace.

From 6 April 2027, the new penalty points regime will apply for all taxpayers. For each quarterly update or annual tax return deadline that is missed, a taxpayer will receive one penalty point. One penalty point is awarded per deadline, rather than per quarterly update. This means if you have more than one business and are required to send more than one quarterly update by the same deadline, if they are all late, you will still only receive one penalty point for that deadline.

If taxpayers are not required to submit quarterly because they are not within the scope of MTD, a £200 late filing penalty will be levied if a taxpayer reaches two penalty points. For taxpayers within MTD submitting quarterly updates, once the points threshold of four points is reached, a £200 penalty is levied.

You will then receive a further £200 penalty for further late returns (whether quarterly or annual) unless the points are reset. If you stay below the points threshold, a point is removed 24 months after the missed deadline.

In order for the penalty points to be reset to zero, all submissions that were due in the preceding 24 months have to have been received by HMRC even if filed late.

Late payment penalties continue to apply to payments that are not paid in full by the relevant due date. These penalties are not points based but they are different to the current late payment penalty regime. Whilst penalties will not be charged in respect of payments on account, the timeframe in which HMRC can charge a penalty is shorter than the current regime:

In your first year of the new penalties only, you will have 30 days instead of 15 days to make full payment, or, contact HMRC to set up a payment plan. This means if you have already volunteered to use MTD for Income Tax you will continue to have 15 days to make payment or contact HMRC.

HMRC can already charge penalties for failure to keep or preserve records. A penalty of up to £3,000 may be charged for each failure to keep or preserve records in respect of a return. This will also apply where there is a failure to keep digital records, or for a break in digital links in your MTD software.

Inaccuracy penalties do not apply to MTD for Income Tax quarterly updates, but they will continue to apply to the annual tax return in the same way they apply to self assessment tax returns now.

Similarly, failure to notify penalties apply where an individual fails to notify HMRC and register for income tax self assessment. If an individual within the scope of self assessment does not sign up to MTD for Income Tax, the late submission penalty points will apply.

It is possible to appeal any penalty assessment and penalty points awarded by HMRC. Any penalty decision letter will detail how to appeal, but generally, you will need to provide your grounds for appeal (e.g. if you consider that you took reasonable care) and must respond to HMRC within 30 days of their penalty letter.