Self-assessment penalties: Which regime applies to you and your clients for 2025-26 and 2026-27?

Making Tax Digital for Income Tax (MTD for IT) is one of the biggest changes to the UK tax compliance regime in decades. Alongside new quarterly digital reporting and record-keeping requirements, HMRC has introduced new penalties for late submissions and late payments. These will apply to all income tax self-assessment taxpayers from 2027-28.

Who does the new MTD penalty regime apply to? 

The Government announced in the Autumn Budget 2025 that the new MTD penalty regime will become mandatory for all income tax self-assessment (ITSA) taxpayers from 6 April 2027. 

Until 2027-28, the new regime only applies to taxpayers who: 

• Voluntarily enter MTD in 2025-26 or 2026-27. 
• Are part of HMRC’s MTD testing phase. 
• Are mandated into MTD for the 2026-27 tax year. 

Otherwise, existing ITSA penalties will apply to late payments and late submissions in 2025-26 and 2026-27. 

The new MTD penalty regime

The new regime, introduced by the Finance Act 2021 (FA 2021), is intended to be more proportionate. It focuses on persistent non-compliance rather than occasional errors and is similar to the penalty regime introduced for MTD for VAT. 

Two separate regimes apply: 

• A points-based system for late submissions. 
• A revised percentage-based system for late payments.  

Late submission penalties: The points-based regime 

Under the new regime introduced by Schedule 24 of FA 2021, a taxpayer receives a penalty point whenever they miss a filing deadline. HMRC keeps a running total of points. 

The penalty threshold 

The threshold depends on the taxpayer’s filing frequency. For taxpayers who file annually — those not mandated into MTD after 5 April 2027 (or those who have volunteered for MTD) — the threshold is two points. 

For mandated MTD taxpayers who must submit quarterly updates, the threshold is four points. Once a taxpayer reaches the penalty threshold: 

• A fixed penalty of £200 is charged. 
• Every subsequent missed filing deadline triggers a further £200 penalty while the taxpayer remains at the threshold. 
• No further points are issued while the taxpayer remains at the threshold. 

HMRC guidance says taxpayers will receive a letter if they are issued with a late submission penalty point or a £200 penalty. Taxpayers can appeal penalty points or £200 penalties if they believe they are wrong. 

Removing penalty points 

HMRC will automatically remove points 24 months after the relevant missed deadline, as long as the taxpayer hasn’t reached the threshold.  

Once the taxpayer has reached the threshold, HMRC will only remove all points if the taxpayer: 

• Submits all outstanding quarterly updates and their tax return on time for 12 months. * 
• Submits any outstanding quarterly updates and tax returns due for the previous 24 months. 
• From 2027-28, taxpayers who aren’t in MTD must satisfy the first condition by submitting their tax return on time for 24 months. 

HMRC can also apply additional tax-geared penalties under Schedule 25 of FA 2021, where a taxpayer deliberately withholds information by failing to submit their tax return. This applies where the missing information would allow HMRC to assess the tax liability for the year. 

Important note for 2026-27 mandated MTD taxpayers 

Penalty points aren’t issued for late quarterly update submissions by taxpayers who are voluntarily in MTD, or by 2026-27 mandated MTD taxpayers under HMRC’s “soft landing”. 

The penalty soft landing only applies to 2026-27 mandated taxpayers and only covers quarterly submissions for 2026-27. It doesn’t apply to: 

• Late submission of the MTD return for 2026-27. All quarterly updates must be submitted before the annual MTD return can be submitted. 
• Any taxpayers mandated into MTD after 2026-27. 
• Other MTD obligations, such as keeping digital records, still apply. Late payment penalties also still apply. 

Late payment penalties: The revised percentage-based system 

The late payment penalties introduced by Schedule 26 of FA 2021 are designed to be more proportionate to the time taken to pay. The later the overdue amount is paid, the higher the penalty will be. This should encourage taxpayers to contact HMRC quickly if they’re having payment difficulties. Late payment interest is also charged. 

Up to 15 days late

• No penalty is charged if the taxpayer: 
• Pays in full within 15 days of the due date. 
• Agrees a Time to Pay arrangement with HMRC within that period. 

Between 16 and 30 days late

A first penalty of 3% of the tax unpaid at day 15 applies. This increases to 4% from 2027-28. 

More than 30 days late 

A further penalty of 3% of the tax unpaid at day 30 applies. This increases to 4% from 2027-28. A further 10% annual rate is charged daily on the outstanding amount from day 31 until the tax is paid, or for up to two years. 

In the first year that the new late payment penalty regime applies to a taxpayer, HMRC won’t charge the first penalty on tax unpaid after day 15. 

HMRC guidance says taxpayers will receive a letter if they are issued with a late payment penalty. Taxpayers can appeal late payment penalties if they believe they are wrong. 

The current penalty regime for 2025-26 and 2026-27 

Taxpayers who are not yet within MTD for Income Tax, the existing penalty regime will continue to apply for 2025-26 and 2026-27. 

Late submission penalties 

Late submission of a self-assessment return can lead to the following penalties under Schedule 55 of Finance Act 2009 (FA 2009 Sch 55): 

• An immediate fixed penalty of £100 applies, even where no tax is payable. 
• After three months, daily penalties of £10 a day can be charged for up to 90 days, up to a maximum of £900. 
• After six months, a further penalty of 5% of the tax due, with a minimum penalty of £300, can be charged. 
• After 12 months, an additional penalty can be charged. This is the greater of 5% of the tax due or £300. 

After 12 months, HMRC can increase percentage-based penalties to up to 100% of the tax due where a taxpayer deliberately withholds information by failing to submit their tax return. This applies where the missing information would allow HMRC to assess the tax liability for the year under paragraph 6 of FA 2009 Sch 55. 

Late payment penalties 

Where tax remains unpaid after the due date, HMRC can charge the following penalties under Schedule 56 of FA 2009: 

• A penalty of 5% of the tax unpaid 30 days from the due date, known as the “penalty date”. 
• A further penalty of 5% of the tax unpaid five months from the penalty date. 
• A further penalty of 5% of the tax unpaid 11 months from the penalty date. 

Late payment interest is charged from the original due date. 

HMRC guidance 

You’ll find the latest HMRC guidance on these penalty regimes below: 

• Penalties for Making Tax Digital for Income Tax 
• Penalties for Making Tax Digital for Income Tax volunteers 
• Self Assessment tax returns: Penalties 

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