New Penalties Under MTD and Deadlines
From 6 April 2025, the UK government will implement sharper late-payment penalties for taxpayers under VAT and income tax Self Assessment, especially among those required to join Making Tax Digital (MTD). The new structure is:
- 3% charge if tax liability is overdue by 15 days;
- An additional 3% if overdue by 30 days;
- 10% per annum for amounts remaining unpaid after 31 days or more. (gov.uk)
Expansion of MTD for Income Tax Self Assessment
Sole traders and landlords with gross income over £50,000 from self-employment and property in the 2024-25 tax return will need to comply with MTD requirements from April 2026. That means digitally keeping records and submitting quarterly updates using HMRC-compatible software. (gov.uk) Agents can begin signing up for testing now. (gov.uk)
What This Means for Compliance Burden
- Quarterly reporting cycles replace annual filings for those over thresholds — more frequent compliance, faster cash flow management needed.
- Software compatibility matters: ensure records flow from book-keeping tools to HMRC via digital link.
- Penalties kick in quickly: delays of even two weeks can trigger 3% penalty. Over 30 days overdue compounding charges.
Practical Advice for Taxpayers & Advisors
- Check eligibility now: if income or property rental gross receipts exceed £50,000, begin system upgrades early.
- Sign up for the testing programme: benefits include support and reducing teething issues before compulsion. (gov.uk)
- Improve cash flow forecasting to avoid overdue liabilities past 15 or 30 days.
- Train staff or advisors on digital MTD submissions; double-check reconciliations and data accuracy to avoid penalties.
- Automate where possible, especially recurring expenses, invoicing, and rent income, to maintain up to date records.
Example Situation
Marcus is a landlord with an annual rental income of £60,000 and some consulting self-employment income. Under the new regime from April 2026, because his gross income from property + self-employment exceeds £50,000, he must use MTD and submit quarterly figures. If any payments or partnered tax liabilities are delayed beyond 15 days, a 3% penalty arises; beyond 30 days another 3%. Marcus should adopt accounting software now, ensure early cash reserves, and perhaps prepay some liabilities where possible.
Bottom Line
- Be proactive: eligibility, systems, cash flow.
- Accurate, timely digital submissions will avoid penalties.
- Advisers must advise clients to prepare well ahead of compulsion in 2026.