Making Tax Digital (MTD) for Income Tax is approaching fast and many sole traders, landlords and self-employed individuals remain underprepared.
With the first wave due from 6 April 2026, the time has come to get organised before the deadline arrives and the penalties begin.
An overhaul like MTD is not complete without a new penalty system, so we want to help you understand the risks of failing to prepare for MTD.
Who will be captured by MTD for Income Tax?
From 6 April 2026, anyone filing a Self-Assessment return with gross self-employed and/or property income above £50,000 will join the MTD regime.
The Government plans to lower that threshold in stages, with the threshold dropping to £30,000 from April 2027 and to £20,000 the following year.
If you are near those bands, you should begin preparing for MTD now, as you will be included soon.
MTD adoption is mandatory and you will need to keep digital records and submit quarterly filings to stay compliant.
How do the new MTD penalties work?
Penalties under MTD are now modelled on a points system rather than a single one-off fine.
Missing a quarterly update adds a point to your record, so while one slip may not be catastrophic, repeatedly missing deadlines does gradually become more of a problem.
Accumulating four points from missed quarterly filings or two points from missed annual filings results in a £200 fine.
The points stay on your record for two years and will only be removed if you can meet all of the deadlines required during that time.
As well as the points themselves, late payments also carry their own penalty structure.
If you pay within 15 days of the due date, there is no penalty.
Payments made between day 16 and day 30 face a three per cent charge on the outstanding balance, rising to six per cent at day 30.
If the debt remains after 30 days, a further charge begins to accrue, effectively totalling a daily-accruing penalty equivalent to ten per cent per year until the liability is cleared.
Agreeing on a Time to Pay arrangement with HMRC will generally pause further penalties, so it is best to enter into negotiations as soon as it becomes apparent that payments cannot be met.
What other compliance traps should you watch for?
MTD places real emphasis on digital record-keeping and on maintaining digital links between systems.
HMRC can impose fines of up to £3,000 where records are inadequate and this will include any failures with your digital records or broken digital links within your functional compatible software.
There is also a minimum £300 penalty for deliberate concealment of information.
Ultimately, this means that disconnected spreadsheets and ad-hoc processes are now a material risk and need to be avoided at all costs.
We can help you review your systems to ensure that you are ready for MTD.
Ideally, you will never need to worry about the MTD penalties, but it is important to understand what they are so that you can work to avoid them.
Speak to our expert team today to avoid facing the penalties of MTD non-compliance.