For those moving to MTD, Making Tax Digital penalties in 2026 are shifting from automatic fines to a “points-based” system for late submissions. And a tiered percentage system for late payments.
Therefore, in the 2026/27 tax year, understanding about the Making Tax Digital penalties should be the most important thing on your “to-do” list.
This guide will walk you through:
- How does Making Tax Digital work
- Making Tax Digital penalty points
- MTD penalties for late filing
- And much more…
Let’s get into it!
How Does Making Tax Digital Work?
Before we get into the Making Tax Digital penalties, let’s have a quick recap on how Making Tax Digital works. Because it would be difficult to understand the fines if you don’t understand the rules.
Okay, so Making Tax Digital for Income Tax (MTD for ITSA) requires affected sole traders and landlords to:
- Keep digital records of income and expenses. It must be done using HMRC-compatible software.
- Submit quarterly updates to HMRC. This is now four times a year, not just once.
- File a final declaration (replacing your Self Assessment return) by 31 January after the tax year ends.
The quarterly deadlines for the 2026/27 tax year are:
| Quarter Period | Deadline |
| 6 April – 5 July 2026 | 7 August 2026 |
| 6 July – 5 October 2026 | 7 November 2026 |
| 6 October – 5 January 2027 | 7 February 2027 |
| 6 January – 5 April 2027 | 7 May 2027 |
| Final Declaration (2026/27) | 31 January 2028 |
Note: You can elect to use calendar quarters (starting 1 April instead of 6 April). But the filing deadlines stay the same.
Who does this apply to right now? If your combined self-employment and property income was over £50,000 in the 2024/25 tax year, you are in from 6 April 2026. The threshold drops to £30,000 from April 2027, and to £20,000 from April 2028.
Making Tax Digital Penalties in Detail
Making Tax Digital (MTD) for Income Tax penalties utilises a new points-based system for late submissions and a percentage-based system for late payments. This separates them from previous regimes.
Below is how the points-based system works for everyone now in the 2026/27 tax year:
Making Tax Digital Penalty Points Explained
The new Making Tax Digital penalties system works on penalty points instead of instant fines. It is designed to penalise persistent lateness rather than occasional errors.
It means a one-off mistake will not cost you money immediately. Instead, you will receive one point for each missed deadline.
MTD penalties for late filing are managed through this points-based system. Usually, you receive one point for every missed quarterly update or final declaration. However, for the 2026/27 tax year, HMRC is only applying points for late final declarations. You won’t be charged a fee until you hit a threshold of four points.
Once you reach that fourth point, you are issued a £200 penalty. Any late filing after that also costs £200. To clear these points and start fresh, you generally have to complete a “period of compliance”. Under that, you have to file everything on time for twelve months.
If you are below the 4-point threshold, each point expires automatically 24 months after the missed deadline.
Important: Making Tax Digital penalty points for VAT and Income Tax are tracked separately. If you are VAT-registered, your VAT points and your Income Tax points are counted independently. You could end up facing both at the same time.
What Are the Making Tax Digital Late Payment Penalties
Unlike the points-based approach for late filing, Making Tax Digital penalties for late payment are charged differently. These are calculated based on how long the money stays in your pocket instead of HMRC’s.
In other words, how long the payment stays overdue. Here is how Making Tax Digital late payment penalties work:
| Days Overdue | Penalties for the 2026 to 2027 tax year |
| Payment up to 15 days late | No penalty (interest only) |
| Payment is 16 to 30 days late | 3% of the outstanding amount. No penalty if it’s your first year. |
| Payment is 31 days or more late | 3% of the tax owed at day 15, and 3% of the tax owed at day 30. Plus, an annual rate of 10% per year on the outstanding amount, charged daily from day 31 until the tax is paid, or for up to 2 years. |
It is important to remember that late payment interest runs from day one. This means HMRC charges interest on the overdue amount from the date it was due. So even if you pay before the penalty kicks in, you will still owe interest.
Note: If you cannot pay your tax bill in full, you may be able to set up a payment plan to pay it in instalments.
What Are the Making Tax Digital Non-Compliance Penalties
Beyond late filing and late payment, HMRC Making Tax Digital penalties also cover wider non-compliance. This area is particularly important for landlords and smaller businesses transitioning to digital bookkeeping. Because HMRC now expects proper digital bookkeeping throughout the year.
Making Tax Digital non compliance penalties include:
- Failure to keep digital records: If you fail to maintain digital records as required by MTD rules, HMRC can charge a penalty of up to £3,000.
- Failure to use digital links: If you transfer data manually between systems rather than using proper digital connections, similar charges can apply.
- Record-keeping failures in compliant software: Up to £3,000 for the tax year for not using HMRC-approved software at all.
One of the most common Making Tax Digital problems is that businesses assume spreadsheets alone are enough. In some cases, they may work if linked properly through approved software. But manual record keeping without digital links can create compliance issues later.
The safest approach is usually to use recognised MTD-compatible accounting software from the start.
What Are the Making Tax Digital Penalties Example for UK Businesses
Let’s look at the Making Tax Digital penalties example. Say you owe £10,000 and pay 35 days late in the 2026/27 year. Because you are more than 30 days late, you trigger two penalties: the 3% charge from Day 15 and the 3% charge from Day 30. That is £600 in total fines, plus daily interest from day one. If you wait until day 60, you’d owe 3% plus the second 3% charge plus the 10% annual charge building up daily. Yes, Making Tax Digital penalties add up quickly!
Making Tax Digital Penalties in 2026: The Grace Period
Here is the good news. For the 2026/27 tax year, HMRC has confirmed that no penalty points will be issued for the late submission of the first four quarterly updates. This is a deliberate soft landing. It is to let people get to grips with the new system without immediately being fined.
But you still have to send those quarterly updates. You cannot file your final declaration without them. The grace period removes the penalty points. It does not remove the obligation.
Also, remember that the soft landing for submission points does not apply to the Final Declaration. However, the 30-day payment grace period for 2026/27 does include your final balancing payment.
In the first year (2026/27), you have a 30-day grace period for payments before penalties apply. But from the 2027/28 tax year onwards, the temporary 30-day concession will end. And the standard 15-day rule for avoiding the first penalty will apply.
Making Tax Digital Income Tax Penalties vs. VAT Penalties
It is worth knowing the difference between Making Tax Digital income tax penalties and Making Tax Digital VAT penalties. Because they are similar but not identical.
- MTD for VAT penalties have been in place since January 2023. All VAT-registered businesses have been under MTD for VAT since April 2022. The penalty points system for VAT works the same way. It is 4 points for quarterly filers that triggers a £200 fine. Monthly filers hit their threshold at 5 points. And annual filers at 2 points. Late payment penalties for VAT also follow the same structure.
- MTD for Income Tax penalties are being introduced from April 2026. They follow the same framework, but with the first-year grace period for quarterly submissions described above.
The critical thing to remember is that VAT points and Income Tax points are separate. They do not combine. But they can both build up at the same time if you miss deadlines across both.
How to Avoid Making Tax Digital Penalties
Avoiding Making Tax Digital penalties is genuinely not complicated if you get organised. Here are the practical steps:
- Choose compliant software early. HMRC has a list of approved software providers. Pick an MTD-compatible software and set it up. Then start logging income and expenses digitally from 6 April 2026 onwards.
- Set up a calendar for quarterly updates. The quarterly deadlines are fixed. Put them in your calendar now. 7 August, 7 November, 7 February, and 7 May each year.
- Submit even if the figures aren’t perfect. You can correct and amend. A late or missed submission is worse than an imperfect one.
- Contact HMRC early if you cannot pay. If you set up a Time to Pay arrangement before the penalty kicks in, penalties are paused from the date you contact HMRC.
- Keep your contact details updated. HMRC needs to be able to reach you. Make sure your email and phone number are current in your MTD account.
- Get professional support. If any of this feels complicated, it’s worth speaking to Making Tax Digital accountants who work with MTD regularly. The cost of good advice is usually far less than the cost of penalties that build up quietly over several quarters.
The Bottom Line
Making Tax Digital penalties in 2026 are not something to ignore. The points‑based system means fines can build up quickly if you miss deadlines. Landlords, sole traders, and small businesses must keep digital records and use approved software.
The best way to avoid Making Tax Digital penalties is to stay organised and get professional support.
How Accotax Can Help
At Accotax, we have been helping sole traders and landlords manage MTD since the early testing stages. If you are unsure which software to use or how to avoid Making Tax Digital penalties, our specialist Making Tax Digital accountants are happy to have that conversation with you.
Also, if you need help with any other accounting service, such as bookkeeping, VAT, or year-end accounts, we offer a range of packages designed to fit your unique needs.
Reach out, get an instant quote, and let us help you stay compliant!
Disclaimer: The information about “What Are the Making Tax Digital Penalties 2026?” is provided in this article including text and graphics. It does not intend to disregard any of the professional advice.
