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 submit their tax return 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 2026 to 2027 tax year. Points still apply to late tax returns. 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. The threshold is 4 points.

You get only 1 point per deadline, even if you have more than one business and send several quarterly updates late.

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 and your tax return). Points do not pool across different obligations.

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

EasyInvoice is HMRC-recognised for MTD for Income Tax. It’s designed to reduce the risk of penalties by keeping your tasks and deadlines visible and by nudging you ahead of time:

• Deadline reminders: the home screen reminds you in the 10 days before each quarterly update deadline (standard or calendar periods).

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

• One workflow: digital records → quarterly updates, with a CSV export of all transactions if you ever need to move data. Your tax return can stay with your accountant.

• 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).

If you’re looking for EasyInvoice for landlords and sole traders in the UK, download the app today