MTD and Penalties: How Much Will It Cost to File Late from 2026?

A detailed look at HMRC’s penalty regime for Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), with practical examples and ways to avoid charges.

*This article is accurate as of 11 January 2026. HMRC may update Making Tax Digital (MTD) rules, deadlines and penalties. If you’re reading this after that date, check the latest HMRC guidance before acting.

What changes with MTD for ITSA?

From April 2026, many sole traders and landlords must keep digital records and send quarterly updates, then complete year-end steps (EOPS and a Final Declaration) using compatible software. Missing deadlines will fall under HMRC’s points-based late-submission regime (details below). Quarterly update deadlines are one month after each period end (for standard periods: 7 Aug, 7 Nov, 7 Feb, 7 May), and your software will show an in-year tax estimate after each update.

Soft-landing (first year): If you must use MTD from 6 April 2026, HMRC will not apply penalty points for late quarterly updates for the first 12 months. Points still apply to late tax returns (your Final Declaration). You must still submit your quarterly updates before you can file your tax return.

Penalties for late submission (filing) under MTD

HMRC’s regime gives you points when you miss a submission deadline. When you hit the threshold for your submission frequency, HMRC charges a £200 penalty, and each further late submission while you’re at the threshold triggers another £200. Thresholds: Quarterly = 4 points, Annual = 2 points, Monthly = 5 points. Points are tracked separately for different obligations (e.g., quarterly updates vs. EOPS vs. Final Declaration).

If quarterly update, EOPS and Final Declaration deadlines fall in the same month and you miss all three, up to three points can be applied (they are separate obligations). 

How points are cleared: Individual points normally expire after 2 years, but once you’ve reached the threshold, you must first meet a period of compliance (Quarterly: 12 months; Annual: 24 months) and file any outstanding submissions from the previous 24 months. 

Penalties for late payment (paying tax late)

What applies right now (for payments due up to 5 April 2026):

If you pay your Self Assessment tax late, HMRC charges late-payment penalties of 5% of the unpaid tax at 30 days, 6 months and 12 months late. Interest is also charged from the due date until you pay.

What’s changing for ITSA under the new regime:

For taxpayers brought into Making Tax Digital for ITSA, HMRC is moving to a new late-payment model on the dates below. There is no penalty if you pay within 15 days of the due date.

• Days 16–30: first penalty of 2% of the unpaid amount.

• Day 31: the first penalty becomes 2% of what was unpaid at day 15 plus 2% of what was unpaid at day 30 (in most cases this is 4% at day 30).

• From day 31 onwards: a second penalty accrues daily at 4% per year on any amount still unpaid, and stops when you pay or agree a Time to Pay arrangement with HMRC.

These changes apply to ITSA customers with income over £50,000 from 6 April 2026, and to those with income over £30,000 from 6 April 2027.

Interest rate:

Late-payment interest is charged from the due date until payment. From 6 April 2025, HMRC’s late-payment interest is Bank of England base rate + 4% (it was base rate + 2.5% up to 5 April 2025). Repayment interest is base rate − 1% with a minimum of 0.5%.

Practical ways to avoid penalties

• File on time – even if you’ll fine-tune figures in your year-end adjustments. (Quarterly updates help surface errors early, and your software/HMRC shows an in-year tax estimate after each update.) 

• Pay on time, or contact HMRC quickly to agree Time-to-Pay if you cannot pay in full – this helps limit further penalty stages and stops interest building on larger balances. (Late-payment penalties and interest continue until the liability is cleared.)

• Track each obligation separately (each business’s quarterly updates, EOPS, and your Final Declaration). Points do not pool across different obligations.

How EasyInvoice helps you stay on track (and avoid charges)

EasyInvoiceis being rebuilt specifically for MTD for ITSA. It’s designed to reduce the risk of penalties by keeping your tasks and deadlines visible and by nudging you ahead of time:

• Deadline automation: reminders for quarterly updates (standard or calendar periods), EOPS, and the 31 January Final Declaration.

• In-year view: integrated tax estimates after each update so you’re less likely to be surprised by January cashflow.

• One workflow: digital records → quarterly updates → year-end steps, with export options if you ever need to move data.

• Product support: we focus on helping you use the software effectively and follow the MTD process HMRC expects software to support (product support only – not tax advice).

Be the first to know when MTD features go live: join the waiting list