MTD ITSA Penalties Explained: the Soft Landing, Points System, and What Changes in 2027/28

MTD for Income Tax has two penalty regimes running at the same time: a soft landing in the first year that removes penalty points for late quarterly updates, and the full points-based system that applies from 2027/28. The two are easy to confuse, and the boundary matters — certain penalties bite from day one even during the soft landing. This guide sets out exactly what is paused, what is not, and how the points mechanics work from 2027/28.

The 2026/27 soft landing: what is actually paused

HMRC has confirmed that for the 2026 to 2027 tax year — the first year of mandation — "there are no penalties for missing a quarterly update deadline." The soft landing applies only to the points-based late-submission penalty for quarterly updates. It does not touch anything else.

What the soft landing does not pause:

• Late-payment penalties. Tax owed on 31 January is subject to the same late-payment penalty regime as standard Self Assessment: 5% of unpaid tax after 30 days, further 5% at six months, further 5% at twelve months.
• Late-payment interest. HMRC's late-payment interest — currently base rate plus 4% — runs from the day after the payment deadline on any unpaid tax, regardless of year of mandation.
• The final declaration. The final declaration replaces the SA100 for mandated taxpayers and is due by 31 January following the tax year. Missing it attracts the same immediate £100 penalty as a late SA return, followed by daily penalties at three months, and tax-based surcharges at six and twelve months.

The practical consequence: a client who misses every quarterly update in 2026/27 faces no points penalty for those updates, but is still liable for late-payment interest and penalties if their tax is not paid on time, and faces standard SA penalties if the final declaration is missed. The soft landing is not a penalty holiday — it is a specific one-year easement for one class of obligation.

Source: GOV.UK — Penalties for Making Tax Digital for Income Tax, verified June 2026.

The points-based system from 2027/28

From the 2027/28 tax year, the full late-submission penalty regime applies to quarterly updates. Each missed deadline earns one point. When accumulated points reach the threshold, a fixed-sum penalty of £200 is charged. Further missed deadlines after the threshold is reached attract additional £200 penalties each.

For quarterly filers — which all MTD ITSA taxpayers are — the penalty threshold is 4 points. The sequence looks like this:

Source: GOV.UK — Penalties for Making Tax Digital for Income Tax.

The one-point-per-deadline rule

A client can have multiple sources of income under MTD — say, a sole trade and a rental property. Both are reported in the same quarterly update. HMRC charges one point per deadline, regardless of how many businesses or income sources are covered in that update. Missing the 7 August 2027 update for a client with two self-employment businesses earns one point, not two.

This is different from VAT, where each VAT registration is assessed separately. Under MTD ITSA, the point attaches to the taxpayer's obligation for the period, not per-source. It is worth explaining this to clients who assume the number of income sources multiplies the exposure.

How points expire

Points do not accumulate indefinitely. Once a client has met the compliance threshold — filing a set number of updates on time following a missed deadline — points begin to expire. HMRC's guidance sets out the expiry conditions: points are generally removed after a period of compliance, so a client who misses one update and then files the next three on time will see that point expire. The exact mechanics are set out in the Finance Act 2021 penalty provisions.

The expiry rules mean a client who misses a single update in an otherwise compliant year is unlikely to reach the 4-point threshold unless they also miss subsequent updates. The regime is designed to catch persistent non-filers rather than occasional slips.

Comparison with the old Self Assessment £100 penalty

Under the old Self Assessment regime, a single late return — one annual filing — attracted an immediate £100 penalty, with no warning system. The MTD ITSA quarterly regime has a higher frequency of obligations (four per year) but a softer initial consequence: four misses before the first financial penalty. The tradeoff is that the financial exposure arrives faster for persistent non-filers once the threshold is crossed — four missed updates and a £200 penalty occurs within twelve months rather than over multiple tax years.

Note that the old £100 SA penalty applies to the final declaration if it is missed — the final declaration is treated as a tax return for penalty purposes. The new quarterly regime is layered on top of, not in place of, the final-declaration penalty.

What this means in practice

For the 2026/27 year, no client needs to worry about points penalties on the quarterly updates themselves. File them, because the soft landing is not a reason to skip — it is an opportunity to fix the process without a financial cost attached to the mistakes. Any client who has not yet filed and it is past 7 August 2026 should file as soon as possible: there is no penalty for the lateness in year one, but the obligation still exists.

From 2027/28, the message for clients is: four misses in a year gets expensive fast. The practical way to avoid reaching the threshold is not to rely on clients remembering to contact you each quarter — it is to set diary reminders well in advance of 7 August, 7 November, 7 February and 7 May, and to have records ready two to three weeks before each deadline. A client who reaches out on 6 August with an unreconciled bank statement is a client who is about to miss the 7 August deadline.

For detailed tracking of all four quarterly deadlines per practice, see the MTD ITSA quarterly update deadline page.

FAQ

Does the soft landing in 2026/27 apply to the final declaration?

No. The soft landing applies only to the four quarterly updates. The final declaration — due 31 January 2028 for 2026/27 — is subject to the standard self-assessment late-filing penalty regime: £100 immediately, daily charges from three months, tax-based surcharges at six and twelve months.

What if a client misses both a quarterly update and the payment deadline?

The penalties are separate. The quarterly update penalty (in years without a soft landing) relates to failing to submit the update on time. The payment penalty relates to failing to pay tax on time. Both can apply for the same period: a client who is late filing and late paying faces both a point (from 2027/28) and a late-payment penalty.

Can penalty points be appealed?

Yes. HMRC's points-based regime includes the same reasonable-excuse framework as the rest of the Self Assessment penalty system. If a client had a genuine reason for missing a quarterly update — serious illness, bereavement, technical failure outside their control — an appeal can be made. The appeal must be submitted within 30 days of the penalty notice.

My client has income from both sole trade and property. Do they get two points for missing one deadline?

No. One point per deadline, regardless of the number of income sources covered in that update. See the one-point-per-deadline section above.

This is general information, not advice — check the GOV.UK guidance, or a client's specific position with a qualified accountant, before acting. See also the MTD ITSA complete guide and the 2026 rollout plan. Related deadline pages: MTD ITSA quarterly update deadline, final declaration deadline.

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Sources
GOV.UK — Penalties for Making Tax Digital for Income Tax: https://www.gov.uk/guidance/penalties-for-making-tax-digital-for-income-tax
GOV.UK — Check if you're eligible for Making Tax Digital for Income Tax: https://www.gov.uk/guidance/check-if-youre-eligible-for-making-tax-digital-for-income-tax
GOV.UK — Send quarterly updates: https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/send-quarterly-updates