New guidance sets out how late submission and payment penalties will work under Making Tax Digital for Income Tax from April 2026.
HMRC has published new guidance explaining how penalties will apply under Making Tax Digital for Income Tax, giving agents and taxpayers more clarity ahead of mandation from April 2026.
The update confirms that a new penalty regime will replace the current Self Assessment system for those within MTD IT. Instead of automatic fines, late submissions will be tracked using a points-based system, with financial penalties only triggered once a threshold is reached.
Under this approach, each missed deadline results in a penalty point. Once the threshold is reached, a £200 charge applies, with further penalties issued for continued non-compliance.
The guidance also outlines changes to late payment penalties. These will operate separately from submission penalties and may include percentage-based charges if tax remains unpaid after specific time periods, alongside ongoing interest on outstanding amounts.
Importantly, the new rules will only apply from the tax year in which a taxpayer joins MTD for Income Tax. Existing Self Assessment penalties will continue to apply for earlier periods.
For bookkeepers, the move reinforces the need to help clients stay on top of more frequent reporting obligations under MTD. While the points-based system is designed to be more proportionate, repeated missed deadlines will still lead to financial consequences.
As MTD for Income Tax approaches, understanding how the penalty regime works will be key to supporting clients and avoiding unnecessary costs.
