HMRC publishes penalty guidance for MTD IT

HMRC has published guidance on how penalties will apply under Making Tax Digital for Income Tax (MTD IT). With mandation approaching from April 2026, what do you need to know about the new regime?

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The new system replaces existing penalties with a points-based regime for late submissions, alongside separate penalties for late payment of tax. Under the points-based system, you receive a point each time a submission deadline is missed. Once a threshold is reached, a fixed penalty is charged. For quarterly MTD submissions, the threshold will be four points, after which a £200 penalty applies. Further missed deadlines will trigger additional £200 penalties until compliance improves and points are reset. Points expire after a period of good compliance.

Late payment penalties operate separately. These are based on how long the tax remains unpaid, with penalties arising at 15 and 30 days, and again after six months. Late payment interest continues to apply.

The new penalty regime will apply from 6 April 2026 for those within MTD IT. However, HMRC will operate a soft-landing period for late submission penalties in the first year of mandation. In practice, this means that penalty points will not be charged for missed quarterly updates during that initial period, giving taxpayers time to adjust to the new reporting requirements. As mandation approaches, you should ensure systems and processes are in place to meet quarterly deadlines. While late submission penalties are deferred initially, late payment penalties and interest will still apply where tax is not paid on time.

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