What’s changed: MTD expansion & late-payment penalties
- From 6 April 2025, VAT and Income Tax Self Assessment (ITSA) taxpayers will face new late-payment penalties: 3% after 15 days overdue, another 3% at 30 days, and 10% per annum after 31 days of further delay. (gov.uk)
- Also from 6 April 2028, a new threshold: individuals with trading or property income over £20,000 must comply with Making Tax Digital for ITSA, unless exempted. (gov.uk)
Implications for businesses and self-employed individuals
- Businesses with property or trading income approaching the threshold must prepare now by ensuring accounting software is MTD-compliant.
- Late payments now attract penalties quickly; even short slips in PAYE, VAT, or self-assessment can lead to escalating charges.
- Good cash-flow management becomes critical—avoid waiting until the deadline.
Practical compliance strategies
- Use software: MTD mandates software for submissions; ensure your tool can:
- track VAT, income, expenses;
- generate digital records;
- manage deadlines clear to avoid arrears.
- Date your payments accurately, allow buffer, aim for early filing.
- Where possible, make use of HMRC’s time to pay arrangements if facing difficult payments—seek relief before penalties escalate.
Case example
Suppose Tom, a sole trader, had a VAT bill due on 1 May 2025 but paid late on 20 May. He’d face:
- 3% penalty on outstanding amount after 15 days;
- another 3% after 30 days;
- ongoing interest (10% p.a.) after 31 days.
If Tom’s trading income was £21,000 from the year 2027-28, from 6 April 2028 he’ll need to report through MTD for ITSA; failing compliance could result in penalties and HMRC reviews.
Actionable checklist
- Audit your accounting tools now—migrate to MTD-compliant software.
- Keep accurate, up-to-date digital records of income & expense.
- Schedule payments/filings in advance and plan for contingencies.
- Review forecast income to anticipate crossing £20,000 threshold for self assessment property/trading income.
- Consult a tax agent for navigating complex claims or appeals.
The bottom line: The changes expand HMRC’s digital reach and shorten grace periods. To avoid penalties and stress, move from reactive to proactive compliance.