The government’s latest announcements on Making Tax Digital for Income Tax (MTD for IT) bring some important updates, particularly for those preparing for the upcoming phased rollout.
The ‘soft landing’ period
For those mandated to join MTD for IT from April 2026, there will be a degree of flexibility in the first year. These taxpayers will not receive penalty points for late submission of their first four quarterly updates. However, this ‘soft landing’ applies only to the first cohort. Those joining the regime in April 2027 and April 2028 will not benefit from the same easement.
That said, it’s important to note that while penalty points won’t apply to the first four late updates, taxpayers must still submit these quarterly reports in order to file their year-end return. The soft landing also does not extend to the 2026/27 tax return due on 31 January 2028, therefore failure to submit this on time will still incur a penalty point.
In a related change, all taxpayers entering the new penalty system will have an additional 15 days before a late payment penalty is charged, offering a total of 30 days to settle outstanding tax.
Penalty reform and alignment across Self-Assessment
To support consistency, the government has confirmed that the new penalty system for late submission and late payment will be extended to all Income Tax Self Assessment taxpayers from 6 April 2027, not just those under the MTD regime. This removes the risk of a two-tier penalty system and provides clearer expectations for all self-employed individuals and landlords.
However, from 1 April 2027, penalties for late payment under both MTD and traditional self-assessment (as well as VAT) will increase. While exact figures haven’t been confirmed, the government’s direction is clear: encouraging timely payment is firmly on the agenda.
Changes to in-year payment of Income Tax
Looking ahead, a new measure has been announced affecting taxpayers with both PAYE and self-assessment income. From April 2029, more of their self-assessment liability will be collected in-year via the PAYE system. This shift is expected to raise significant revenue in the early years due to overlap with existing payments on account.
The government will consult on this change in early 2026. While tax agents currently support clients with payment planning, their ability to amend tax codes is limited. HMRC’s transformation roadmap has hinted at a new digital service to improve this, ideally, this would be in place well before implementation.
The consultation will also cover the potential for timelier payment of tax for those with self-assessment income only.
Further deferrals and exemptions from MTD for IT
Several groups of taxpayers have received a further one-year deferral and will not be mandated into MTD until April 2027. These include:
- Recipients of Trust and Estate income
- Individuals using income averaging adjustments
- Those eligible for qualifying care relief
- Non-UK resident foreign entertainers and sportspeople
These follow the Spring Statement deferral for those completing the SA109 pages (residence, remittance basis etc) of the tax return.
In addition, non-UK resident foreign entertainers and sportspeople with no other qualifying MTD income will be permanently exempt from MTD for IT.
A further permanent exemption will apply to individuals under a deputyship appointed by the Court of Protection.
Our team is here to help you understand your reporting requirements, if you’d like to discuss your personal affairs and if you need to comply to the MTD for IT regime, please contact us today.
