Making Tax Digital Penalties: What You Need To Know

The next phase of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) is coming up fast – and for many sole traders and landlords, there’s still a bit of catching up to do.

From 6 April 2026, MTD for ITSA will become mandatory for anyone earning £50,000 or more from self-employment or property income. And whilst that might sound like there’s still plenty of time, with new rules and penalties on the horizon, getting prepared early really matters.

According to a recent IRIS survey, almost half of UK sole traders (45%) say they don’t feel ready for the changes. That’s a big number – and it means thousands could face fines if they don’t act soon.

Who needs to Make Tax Digital first?

If you already submit a Self-Assessment tax return and earn at least £50,000 from your business or property, you’ll be among the first to move to MTD from April 2026.

After that, more groups will be brought in gradually, so if you’re below the £50,000 mark, it’s worth getting comfortable with digital record-keeping now.:

What’s actually changing?

Under MTD, you’ll need to:

• Keep your business and property income records digitally
• Use HMRC-approved accounting software
• Send quarterly updates through your software
• Finalise your yearly position with a digital end-of-year declaration

The goal is to make tax reporting more accurate and up to date. In practice, though, it means you’ll need reliable software and a good process for keeping everything organised to avoid delays and potential penalties.

How the new penalty system works

HMRC is introducing a points-based penalty system, similar to what’s already used for VAT.

Here’s how it works:

• Each time you miss a quarterly update, you get a penalty point.
• Once you hit the limit (four points for quarterly submissions, two for annual), you’ll get a £200 fine.

There are also late payment penalties to watch out for. These apply if your Income Tax balance isn’t paid on time and increase the longer the payment is outstanding:

• 3% penalty after 15 days
• 6% penalty after 30 days
• Then daily interest at a rate of 10% per year until it’s cleared

If you’re finding it difficult to pay, HMRC does offer Time to Pay arrangements – so it’s always worth contacting them before things escalate.

Please note that following the Autumn Budget 2025 – late submission penalties have been waived for quarterly updates during the 2026/27 tax year for taxpayers required to join MTD.

Key dates to keep in mind

It’s a good idea to put these dates in your calendar early, so there are no surprises later.

Do penalty points disappear?

They do – eventually. Points expire after you’ve filed everything on time for a while. The key is consistency: the more deadlines you hit, the cleaner your slate becomes.

Other reasons HMRC might fine you

It’s not just about missed submissions. You could also be fined if:

• You don’t keep proper digital records – up to £3,000
• You hide or withhold information from HMRC – a minimum £300 fine, potentially higher

So, making sure your systems and software are compliant will save you a lot of stress later.

Who doesn’t have to go digital?

There are some exemptions to MTD. If using digital tools isn’t practical due to age, disability, or poor internet access, you can apply to HMRC for a digital exclusion exemption.

Certain people and entities are automatically exempt, including:

• Trustees (both charitable and non-registered pension scheme trustees)
• Personal representatives handling someone’s estate
• Lloyd’s members for their underwriting business
• Non-resident companies
• People without a National Insurance number before 31 January of the relevant year

How to start preparing now

As 2026 creeps closer, the sooner you get ready, the smoother the transition will be. Here’s what to do now:

• Check your income level to see when you’ll be affected
• Pick MTD-compatible software and start using it now
• Talk to your accountant or adviser about what your quarterly submissions will look like
• Do a trial run of digital record-keeping so there are no surprises later

We’re here to help

We’re already helping clients move across to digital systems and prepare for quarterly submissions. So, whether you need advice on choosing the right software or guidance on setting up your records, our tax specialists can help you get ready well ahead of the April 2026 start date.

Read Making Tax Digital: Your Questions Answered for more information.

Or for personalised advice, get in contact with our tax team today by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk