Penalty changes for Making Tax Digital for Income Tax and Self-Assessment

It has been announced that taxpayers who fall into Making Tax Digital for Income Tax (MTD) from 6 April 2026 will face a soft landing for penalty points.

Additionally, the government have announced that from 6 April 2027, late submission and late payment penalties for those still in self assessment will mirror the MTD penalty regime.

What is the penalty system for MTD?

HMRC’s MTD penalty system operates as a point-based system where you will receive separate penalty points for each late submission of a quarterly report. Once you reach four points, you will be charged a £200 penalty.

You will continue to receive a separate £200 penalty for every late subsequent submission until the points have expired.

MTD penalty points begin to expire after consistently submitting 12 months’ returns on time, providing HMRC have received all submissions due in the previous 2 years.

What is the soft landing?

HMRC have announced that for the first four quarterly returns in 2026/27, taxpayers will not face any penalty points or monetary fines to give taxpayers time to get used to the new system.

It is believed that this will only apply to the first group of taxpayers introduced into MTD, and penalty points will return in full for 2027/28.

Does this apply to my 2026/27 tax return?

No, the penalty holiday does not apply to your 2026/27 tax return which will be due for filing as normal by 31 January 2028.

How will self assessment penalties work?

From 6 April 2027, the same penalty point system will apply to self assessment as well as MTD. This is to align all taxpayers to the same system regardless of whether they are included within MTD.

Late payment penalties are reported to be increasing from 1 April 2027 to encourage taxpayers to pay on time. Full details are not available yet.