MTD penalties waived for first year of Income Tax

01 Dec 2025

Self assessment taxpayers due to join Making Tax Digital for Income Tax (MTD for IT) next April will not face penalties if late filing quarterly updates.

In the Autumn Budget 2025 documents, the government said it will not charge penalty points if those joining MTD fail to submit any of their compulsory quarterly updates of income and expenses late during 2026/27.

This means that the first group of taxpayers earning non-PAYE income over £50,000 will not be liable for the new penalty regime under MTD until April 2027.

HMRC will apply the new penalty regime for late submission and late payment to all income tax taxpayers due to join the new system from 6 April 2027.

The new system is based on a points-based sanctions regime and will penalise those who persistently do not comply by missing filing and payment deadlines.

Under the new regime, when a taxpayer misses an annual submission deadline, they will incur a penalty point. A taxpayer becomes liable to a fixed financial penalty of £200 only after they have reached the points threshold of two for late submission of their final declaration.

Sharron West, Technical officer at the Low Incomes Tax Reform Group (LITRG), said: 'We're pleased to see the government defer penalties for the first year of MTD.

'MTD is the biggest change to the tax system since self assessment and because of that, we expect that there will be some teething problems when it goes live in April.

'This period of grace is especially good news for those who will be getting used to the new system without the help of a tax adviser.'