MTD for Income Tax penalties explained: what taxpayers need to know
The rules around MTD for Income Tax penalties are becoming clearer as HMRC releases further guidance ahead of the 2026 rollout.
If you’re a landlord or self-employed and affected by Making Tax Digital for Income Tax (MTD ITSA), understanding the new penalty system is essential. The changes mark a significant shift from the current Self Assessment regime, especially regarding late submissions and payments.
This guide explains key changes, who they affect, and how to avoid penalties.
When do the new MTD for Income Tax penalties apply?
The new penalty regime will apply depending on when you join or are required to join MTD for Income Tax:
- 2024/25 and 2025/26 – if you voluntarily sign up to MTD
- 2026/27 – for both volunteers and those mandated to comply
- From 2027/28 onwards – for all taxpayers within MTD or Self Assessment
It’s important to note that if you are not yet within MTD, the existing Self Assessment penalty system still applies to earlier tax years.
Late submission penalties under MTD
One of the biggest changes is the move to a points-based penalty system. Each time you miss a submission deadline, you receive a penalty point. Once you reach a certain threshold, a financial penalty is applied.
How it works:
- 1 penalty point per missed deadline
- £200 fine once you reach the threshold
- An additional £200 fine for each further missed deadline.
Thresholds:
- 4 points for mandated taxpayers
- 2 points for volunteers
What counts as a missed submission?
- Volunteers: end-of-year tax return only
- Mandated taxpayers: quarterly updates + end-of-year return
A key detail:
Even if you have multiple income sources (for example, property and self-employment), you’ll only receive one penalty point per deadline, not per submission.
Are quarterly updates penalised?
For the 2026/27 tax year, there are no penalties for late quarterly updates. However, there is still a catch — you must submit your quarterly updates before you can file your final tax return. So while there’s no direct penalty, delays can still cause problems.
How penalty points are removed
Penalty points don’t stay forever. They can be removed in two ways:
- Automatically, after 24 months, if you stay below the threshold.
- Earlier, if you meet HMRC’s compliance conditions or have a valid excuse
Late payment MTD for Income Tax penalties explained
The deadline for paying your tax remains the same:
31 January, following the end of the tax year
However, the way penalties are charged is changing.
Key points:
- Up to 15 days late: no penalty
- 16–30 days late:
- 3% of the tax owed (from day 15)
- 31+ days late:
- Additional 3% at day 30
- Plus daily interest (up to 10% annually)
For earlier years (such as 2024/25), slightly lower rates may apply, particularly for those voluntarily joining MTD.
There is also no penalty for late payments on account.
Interest on late payments
There are no changes to how interest is charged. HMRC will continue to apply interest from the due date until the balance is paid in full.
What this means for taxpayers
The new Making Tax Digital penalties system is designed to encourage consistent compliance rather than penalising one-off mistakes.
However, in practice, it means:
- More frequent deadlines to manage
- Greater risk of penalties if you fall behind
- A need for reliable digital record-keeping
How to prepare for MTD for Income Tax
If you’re likely to be affected from April 2026, now is the time to get ready.
Practical steps include:
- Moving to MTD-compliant software
- Getting used to quarterly reporting
- Ensuring your records are fully digital and up to date
- Speaking to your accountant well before the deadline
Starting early can help you avoid unnecessary stress — and more importantly, avoid penalties.
Final thoughts
The introduction of MTD for Income Tax penalties marks a major change in how HMRC enforces compliance.
While the system is intended to be fairer, it does place more responsibility on taxpayers to stay organised throughout the year.
Preparing now puts you in the best position when MTD becomes mandatory.
Frequently Asked Questions
What are the penalties under MTD for Income Tax?
The system uses penalty points for missed deadlines. Once you reach the threshold, you receive a £200 fine, with additional fines for continued non-compliance.
How many penalty points can you get?
Mandated taxpayers can receive up to four points before a penalty is issued. Volunteers have a lower threshold of two points.
Do quarterly updates carry penalties?
For the 2026/27 tax year, there are no direct penalties for late quarterly updates, but they must be submitted before the final tax return is filed.
When do late payment penalties apply?
Late payment penalties start after 15 days. Charges increase at 30 days and continue daily until the balance is paid.
Can penalty points be removed?
Yes, points expire after 24 months if you remain compliant, or sooner in certain circumstances.
Need help preparing for MTD?
Our team at Maynard Johns have experts who can guide you through the changes, help you choose the right software and ensure you stay compliant from day one.
Get in touch today or explore our Making Tax Digital for Income Tax support services.