Late submission penalties to apply to MTD ITSA taxpayers with income over £50,000

HM Revenue & Customs will extend its points-based late submission penalty regime to Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) taxpayers with income over £50,000 per year from the tax year beginning 6 April 2026¹. The regime already applies to VAT customers for accounting periods beginning on or after 1 January 2023¹. A second phase covers businesses, self-employed individuals and landlords with income over £30,000 per year from the tax year beginning 6 April 2027¹. For all other Self Assessment customers outside the scope of MTD, the changes will apply after the introduction for MTD taxpayers, with no date given¹.

Under the regime, taxpayers no longer receive an automatic financial penalty for a missed submission. Instead they incur points, and at a threshold set by submission frequency a £200 financial penalty is charged and the taxpayer is notified¹. The thresholds are 2 points for annual submission, 4 points for quarterly submission including MTD for ITSA, and 5 points for monthly submission¹. Once at the threshold, a penalty is charged for that failure and every subsequent late submission, but the points total does not increase¹.

Points have a lifetime of two years and expire from the month after the month in which the failure occurred, except where a taxpayer is at the penalty threshold¹. Points are held separately for each submission obligation, so an annual ITSA return and quarterly VAT returns carry separate totals¹. Two or more failures relating to the same submission obligation in the same month normally incur a single point, but this cap does not apply across different MTD for ITSA obligations: a quarterly update, an End of Period Statement and a final declaration missed in the same month can accrue 3 points¹.

Source: Penalties for late submission, GOV.UK¹

All points in a total are reset to zero once the taxpayer has met both a period of compliance and submitted all submissions due within the preceding 24 months, whether or not those were initially late¹. HMRC has 2 years after the failure to assess a financial penalty¹. Taxpayers can challenge a point or penalty through an internal HMRC review and an appeal to the First Tier Tax Tribunal, including on the ground of reasonable excuse¹. HMRC also has discretionary power not to levy a point or penalty in particular circumstances¹.

Why it matters for households

The change affects people who file self-employed income and landlord returns through MTD for ITSA once their income passes the £50,000 threshold, from the 2026/27 tax year, and those above £30,000 from 2026/27's following year, 2027/28¹. For this group, a single late submission no longer triggers an automatic financial penalty; instead points accumulate, and a £200 penalty follows only at the threshold for their filing frequency¹. Because points sit separately for each obligation, a taxpayer with both an ITSA and a VAT obligation can build points in each¹. Points expire after two years, but not while a taxpayer is at the threshold, so resetting a total requires a clean period of compliance plus filing anything outstanding from the previous 24 months¹. The late filing penalties that apply to Self Assessment returns outside MTD are unchanged for now, with the extension to other ITSA customers undated¹.

What happens next

The regime applies to VAT customers for accounting periods beginning on or after 1 January 2023, to MTD for ITSA taxpayers with income over £50,000 from the tax year beginning 6 April 2026, and to those with income over £30,000 from the tax year beginning 6 April 2027¹. No date has been reported for applying the changes to ITSA customers outside the scope of MTD¹.