Compliance & Penalties — What Happens If You Don’t Follow MTD

ASESA Solutions Ltd- Compliance & Penalties — What Happens If You Don’t Follow MTD

As Making Tax Digital for Income Tax (MTD ITSA) becomes mandatory from 6 April 2026 for self-employed individuals and landlords with qualifying income over £50,000, understanding HMRC’s compliance and penalty framework is essential.

HMRC has confirmed that MTD introduces a points-based penalty system for late submissions, similar to the regime already in place for VAT. Under this system, missing a submission deadline does not usually result in an immediate financial penalty. Instead, a penalty point is added for each late submission, including quarterly updates and the End of Period Statement.

For taxpayers who are required to submit quarterly updates, reaching a set points threshold triggers a fixed financial penalty. Further late submissions after reaching the threshold may result in additional penalties. Penalty points remain on record for a defined period, making ongoing compliance important even after a penalty has been charged.

In addition to submission penalties, HMRC may also charge interest and penalties for late payment of tax where amounts remain unpaid after the due date, in line with existing HMRC rules.

HMRC has confirmed that this penalty regime will apply as taxpayers become mandated into MTD for Income Tax and will form part of wider compliance measures as the programme expands.

Key takeaway: 

While penalties are not immediate, repeated late submissions or late payments can result in financial consequences. Using MTD-compatible software, maintaining accurate digital records, and meeting submission deadlines are the best ways to stay compliant and avoid penalties.