Making Tax Digital (MTD) for Income Tax is moving closer and the penalty rules that come with it are very different to what many sole traders, landlords and self-employed individuals are used to.
With the first wave landing from 6 April 2026, the shift from an annual filing rhythm to routine digital updates presents both an administrative challenge and an unfortunate opportunity to miss more deadlines.
With those deadlines looming, you need to understand the risks of not being organised and know what penalties await those who fail to submit their filings on time.
Who will be captured by MTD for Income Tax?
From 6 April 2026, anyone required to file a Self-Assessment return with gross self-employment and/or property income above £50,000 will join MTD for Income Tax.
The Government plans to lower that threshold in stages, with the threshold dropping to £30,000 from April 2027 and to £20,000 the following year.
Even if you are not set to be pulled into the MTD threshold just yet, you should still understand the penalties and begin preparing your filings ahead of time.
How does the new penalty system work?
The penalties are now modelled on a points system.
Missing a quarterly update or filing deadline will add a point to your record.
While a single missed deadline may not immediately cost you much, repeated breaches add up, as four missed quarterly filings will earn you a £200 fine.
For annual filings, two missed deadlines reach that same £200 stage as the points are more serious.
The record can be cleared after two years, but only if every subsequent deadline is met during that time.
This means that even one slip can have consequences that last well beyond the initial error.
Late payments attract a separate, aligned set of charges.
If you pay within 15 days of the due date, there is no penalty.
Payments made between day 16 and day 30 face a three per cent penalty on the balance outstanding, rising to six per cent at day 30.
After 30 days, a second penalty begins to accrue and it builds daily at a rate equivalent to ten per cent per year until the debt is cleared.
The good news is that HM Revenue and Customs (HMRC) will usually halt these charges if you agree a Time to Pay arrangement promptly, but this requires proactive negotiation.
What other compliance traps should you watch for?
MTD emphasises digital record-keeping and digital links between systems.
HMRC can impose fines of up to £3,000 for failing to maintain adequate records for a return.
This includes failing to keep digital records or breaking digital links within functional compatible software.
There is also a minimum £300 penalty for deliberately concealing information that HMRC needs to assess your tax liability.
In short, inaccurate bookkeeping or relying on disconnected spreadsheets is now going to be a costly mistake for anyone who is not organised.
If you are a sole trader, landlord or self-employed individual who has not moved to MTD-compatible processes, then now is the time to get ready.
Our team can review your readiness, recommend software that fits your workflow and set up a practical timetable to avoid penalties.
Speak to our team today for help getting MTD ready so you can avoid the new penalties!
