Making Tax Digital: What Happens If You Miss a Deadline?

As the rollout of Making Tax Digital for Income Tax gathers pace, many taxpayers are asking the same questions: What happens if I file late? What are the penalties? And what should I be doing now to get ready? The good news is that HMRC has introduced a temporary 'soft landing' for those joining the new system, but now is still the time to put the right processes in place and prepare for the changes ahead.

Penalties

Late submissions 

Penalties for late submission of quarterly reports and end-of-year reports for individuals within MTD will move to a points-based system.

Taxpayers in MTD will receive a point each time they miss a deadline; these will accumulate until a Page 8 Ritchie Phillips LLP Making Tax Digital for Income Tax May 2026 threshold of 4 points is reached. Upon reaching the threshold, they will receive an immediate £200 penalty. From that point, any late submission will result in an immediate £200 penalty.

In order to reset the penalty position there will need to be a period of compliance where all submissions are made on time – four quarterly updates or two end-of-year returns – and all submissions required for the previous 24 months must have been made.

HMRC have announced a ‘soft landing’ for individuals who have been mandated into MTD for IT in the current year 2026/27. No late submission penalties will be imposed for the first four quarterly updates.

Do not forget, however, that one of the requirements of MTD is that digital records are kept and penalties will be imposed for non compliance of this.

Late payments 

The penalties for late payments of tax under MTD for IT will be:

• You will be charged a penalty equal to a percentage of the tax owed and paid within 30 days of the due date
• After 31 days there will be a daily accruing charge until the tax is paid.

Leaving MTD 

If your qualifying income drops to below the mandation level for 3 tax years in a row you will be able to opt out of MTD for IT.

Getting ready 

We have already identified which of our clients are affected, based on the 2024/25 tax returns, and have contacted you individually.

HMRC have also been looking at the tax returns submitted for 2024/25 and are writing to anyone that had combined gross income from self employment and / or property of over, or near, £50,000.

After you have filed your tax return for 2025/26, HMRC will advise you whether you are required to join MTD for IT for the 2027/28 tax year.

Record keeping 

If you are not already keeping digital records, now is the time to make this move in order to ensure a smooth transition to MTD reporting.

Separate business banking 

Now is the time to separate out your business banking from your personal banking if you currently have a single bank account, to avoid having to analyse multiple personal transactions as a part of MTD for IT.

In addition, you should also consider getting a credit card for business purchases only.

HMRC Pilot in 2025/26 

HMRC ran an MTD for IT testing program throughout 2025/26.

The pilot was quite limited in terms of numbers of participants and eligibility to take part, they have provided limited feedback as to how this went.

It is almost inevitable that there will be some teething problems in this, current, first year which is why they have announced the soft landing in terms of late filing of the submissions.

We are here to help 

For those of you who will be mandated in April 2027 or 2928, now is a good time to consider whether you are happy to undertake the reporting yourself, or whether you wish to include this in the services that we provide to you. If you have any queries or concerns, please do contact us.

You can also download are full, free guide here: MTD for IT