MTD for Income Tax Penalties in 2026/27: The First-Year Position

The first year has a limited transition rule

HMRC’s penalty guidance gives people joining mandatory MTD for Income Tax in 2026/27 an important transition: there are no penalties for missing a quarterly-update deadline in that tax year.¹

That is narrower than a general penalty holiday. HMRC still requires you to keep digital records and send all quarterly updates before submitting the tax return. The tax return and any tax due still have their normal 31 January deadline.² The practical aim should be to use the first year to establish an accurate routine, not to defer the work until year end.

What changes after 2026/27

HMRC’s late-submission system is points based. A missed tax-return deadline attracts one penalty point; quarterly-update deadlines also attract points for tax years after 2026/27. The threshold is four points, after which a £200 penalty is charged and each later missed deadline brings another £200 penalty.³

HMRC says there is only one point for a deadline even where a person has more than one business and sends more than one quarterly update late. VAT penalty points are separate from MTD for Income Tax points.³ Those rules are useful for planning, but do not change the first-year requirement to build the records and send the updates.

Late payment is a separate issue

Late-payment penalties are not points based. HMRC says they can apply to an unpaid balancing payment and amounts due after an amendment or assessment; payments on account are excluded from those late-payment penalties. Late-payment interest continues from the first day a payment is late.⁴

In the first year of the new penalties, HMRC allows 30 days from the payment due date to pay in full or contact HMRC to set up a payment plan. After that first year the period reduces to 15 days. The 30-day period is only available once: a volunteer who later becomes required to use MTD remains on 15 days.⁵

Do not mix tax years or filing regimes

The new penalties apply from the tax year a person joins MTD for Income Tax. HMRC gives a clear example: someone joining from 6 April 2026 remains under the current penalty rules for their 2025/26 tax return, due by 31 January 2027.⁶

Keep a simple calendar that separates the old Self Assessment return from the new MTD year, and review the account after each update. If paying on time will be difficult, HMRC says to contact it as soon as possible to discuss a payment plan; where a plan is agreed and followed, penalties are paused from the date of contact.⁷