MTD ITSA Penalties in 2026 — What the Soft Landing Actually Means

HMRC's MTD ITSA soft landing means no quarterly-update points in 2026/27 Year 1 — but late-payment and Final Declaration penalties still bite. Read on.

HMRC announced in the November 2025 Budget that the first year of MTD ITSA mandation — the 2026/27 tax year — will operate under a "soft landing" for quarterly update penalties. That means £50,000-cohort taxpayers won't accrue penalty points for missed quarterly deadlines during 2026/27. The soft landing has been widely misrepresented in commentary as a complete "penalty pause" — it is not. This guide explains exactly what is and isn't covered by the soft landing, when full penalties resume, and how the points-based system actually works.

TL;DR: MTD ITSA uses a points-based late submission regime — four missed quarterly updates trigger a £200 penalty. The first quarterly deadline is 7 August 2026. The 2026/27 tax year has soft-landing rules with no automatic financial penalty for first-time misses. VoxaMTD reminds you of every deadline so you stay below the points threshold.

What is the MTD ITSA soft landing?

The "soft landing" is HMRC's name for a temporary suspension of the new points-based penalty system for late MTD ITSA quarterly updates during the 2026/27 tax year. Specifically:

  • It applies to the £50,000-cohort taxpayers (those mandated from 6 April 2026).
  • It applies only to the four quarterly update submissions in 2026/27, not the EOPS or the final declaration.
  • It applies only to late-filing penalty points, not to any of the late-payment penalties.
  • It does not apply to the £30,000 cohort joining from 6 April 2027 onwards.

The rationale HMRC stated in the Budget announcement was to give the first cohort of taxpayers and software vendors space to find issues with the new system without immediate penalty exposure. The soft landing is a one-year-only concession.

Which penalties are waived in 2026/27?

Only one specific penalty type is waived: the late-filing penalty points for missed quarterly update submissions during 2026/27.

Under the new points-based system (which technically launched alongside MTD ITSA), each missed quarterly deadline earns one point. Reach four points in a rolling two-year window and HMRC issues a £200 fixed penalty, with another £200 for every subsequent late filing while still over the threshold. During the 2026/27 soft landing year, HMRC will not issue these points for the £50k cohort. A £50k filer who misses all four 2026/27 quarterly deadlines incurs zero late-filing penalty points.

Which penalties are NOT waived?

Everything else still applies in full from day one.

Late-payment penalties

If you owe HMRC tax and pay late, the new late-payment penalty regime applies in full from 6 April 2026:

  • Day 15 after due date: 2% of the unpaid amount.
  • Day 30 after due date: a further 2% of what was unpaid at day 15 (so cumulatively 4%).
  • From day 31 onwards: daily penalty at 4% per annum on the unpaid balance until paid.

These are not points, they are direct percentage charges on the unpaid tax. The soft landing does not touch them at all. A £5,000 tax bill paid 35 days late accrues £200 (2% on day 15) plus £200 (2% on day 30) plus 5 days of daily interest at 4% annualised — about £2.74 — for a total of just over £400 in penalty before accumulating interest.

Final declaration penalties

The final declaration is the year-end equivalent of the old self-assessment return. Under MTD ITSA, the final declaration is due 31 January after the end of the tax year — so 31 January 2028 for the 2026/27 tax year. The points-based system applies to final declarations, and it is not waived under the soft landing. Miss the 31 January 2028 final declaration deadline and you earn a point in the rolling two-year window.

End-of-period statement (EOPS) penalties

Each income source has an end-of-period statement that reconciles the four quarterly updates with year-end adjustments. EOPS deadlines fall before the final declaration. Late EOPS submission counts toward the points threshold. Soft landing does not apply to EOPS.

Failure to keep digital records

From 6 April 2026, mandated taxpayers must keep digital records in software. Maintaining paper-only or unconnected-spreadsheet records is technically a breach of the digital record-keeping requirement and can attract a separate non-compliance penalty (£500 to £3,000 depending on duration and severity). HMRC has indicated this will be enforced lightly during 2026/27 but is not formally waived.

Inaccurate return penalties

Penalties for inaccurate returns (carelessness, deliberate, or deliberate-and-concealed) under Schedule 24 of the Finance Act 2007 apply unchanged. Submit a quarterly update with deliberately understated income and you face up to 100% of the additional tax due as a penalty. The soft landing does not affect this regime.

What happens from 2027/28 onwards?

From 6 April 2027 the soft landing ends. Two things happen:

  1. The £50,000 cohort that benefited from the 2026/27 waiver now operates under full points-based penalties for late quarterly updates. Any missed quarterly update from Q1 2027/28 onwards earns a point.
  2. The £30,000 cohort joins MTD ITSA for the first time on 6 April 2027 — and they do not get a soft landing. Their first quarterly update is due 7 August 2027, and missing it earns a point immediately.

The 2027/28 year is therefore a step-change for the £50k cohort and the entry point for the £30k cohort. Both groups face full points-based penalty exposure from the start of 2027/28.

The points-based penalty system explained

The points system was designed to be more proportionate than the old "automatic £100 fixed penalty for being one minute late" regime. Each return frequency has a points threshold:

Filing frequencyPoints threshold
Annual (e.g. final declaration)2 points
Quarterly (MTD ITSA quarterly updates)4 points
Monthly (some VAT schemes)5 points

For MTD ITSA quarterly updates, you can miss up to three quarterly deadlines before the £200 penalty kicks in. The fourth missed quarterly within a rolling 24-month window triggers the first £200, and every subsequent missed quarterly while you are at or above the threshold triggers another £200.

Points expire after 24 months from the date they were issued, provided you have submitted on time consistently in the meantime. The "lifetime point" mechanism: if you reach the threshold and the £200 has been issued, your points reset to zero only after you submit on time for a defined "compliance period" (12 months for quarterly filers).

Worked example — £50k cohort filer in 2027/28

Sole trader earning £62,000, mandated from April 2026. The 2026/27 year's quarterly updates are filed on time so no points and the soft landing is irrelevant for them. From 2027/28 onwards:

  • Q1 2027/28 (deadline 7 August 2027): filed late on 14 August 2027. 1 point.
  • Q2 2027/28 (deadline 7 November 2027): filed on time. Still 1 point.
  • Q3 2027/28 (deadline 7 February 2028): filed late on 22 February 2028. 2 points.
  • Q4 2027/28 (deadline 7 May 2028): filed on time. Still 2 points.
  • Q1 2028/29 (deadline 7 August 2028): filed late. 3 points.
  • Q2 2028/29 (deadline 7 November 2028): filed late. 4 points → £200 penalty triggered.

The first late filing alone does not produce a fine. It is the accumulation that does. For a taxpayer who is broadly on time but occasionally drifts, the points system is much more forgiving than the old automatic £100 regime.

How to avoid penalties entirely

Three operational habits prevent every penalty type:

1. Connect bank feeds and review weekly

The biggest source of late filings is people scrambling at quarter-end to reconcile three months of paper receipts. With open-banking feeds in place from day one of the tax year and a 10-minute weekly review, the quarterly update submission is a 5-minute action — not a weekend project.

2. Set up automated reminders 14 days before each deadline

The four quarterly deadlines are 7 August, 7 November, 7 February, and 7 May. The final declaration is 31 January. Get email and SMS reminders 14 and 7 days out. VoxaMTD sends these by default; if you use a different tool, configure them yourself.

3. File the quarterly update even if some categorisations are uncertain

Quarterly updates can be revised. The deadline matters; perfection of categorisation does not. If you are not 100% sure where a £40 receipt belongs, submit your best guess in the quarterly and correct in the next quarter or in the final declaration. The penalty regime measures whether you submitted, not whether your first draft was perfect.

What to do if you've already missed a deadline

File the missing return as soon as you can. The points system is forgiving for first offences but accumulates over a 24-month rolling window. The longer you wait, the more likely additional deadlines slip past and accumulate further points.

If you are over the threshold and have a £200 fixed penalty, you can appeal on grounds of "reasonable excuse" — illness, bereavement, technical software failure, HMRC service outage. Appeals are decided case-by-case and require evidence. Bad personal financial planning is generally not a reasonable excuse; a 36-hour HMRC API outage during the deadline window often is.

The simplest defence against MTD ITSA penalties is consistent on-time filing. If you would like a free MTD-recognised tool that includes deadline reminders, automatic categorisation, and one-click quarterly submission, VoxaMTD is free for sole traders and landlords with no card required.

Frequently asked questions

Does the soft landing mean no penalties at all in 2026/27?
No. The soft landing only waives late-filing penalty points for the four quarterly updates in 2026/27, for the £50,000 cohort only. Late-payment penalties (2% at day 15, another 2% at day 30, daily interest after) still apply in full from 6 April 2026. The end-of-period statement and final declaration penalties also still apply. Inaccurate-return penalties under Schedule 24 still apply.
Do £30k cohort filers get a soft landing in 2027/28?
No. The soft landing is one-year-only and applies to the 2026/27 tax year for the £50k cohort. The £30,000 cohort joining MTD ITSA on 6 April 2027 face the full points-based penalty regime from their first quarterly update on 7 August 2027. There is no second soft-landing year.
How does the points-based penalty system work?
Each missed quarterly update earns one penalty point. For quarterly filing, the threshold is four points in a rolling 24-month window. Hit four points and HMRC issues a £200 fixed penalty, with another £200 for every additional late filing while you remain at or above the threshold. Points expire after 24 months provided you submit on time in the meantime; once over the threshold, you must submit on time for a 12-month 'compliance period' to reset to zero.
What's the penalty for paying tax late under MTD ITSA?
Late-payment penalties apply from day one of MTD ITSA in April 2026 — there is no soft landing for these. Day 15 after the due date: 2% of the unpaid amount. Day 30: another 2% (so 4% cumulative). Day 31 onwards: daily interest at 4% per annum on the unpaid balance until paid. A £5,000 bill paid 35 days late accrues about £400 in late-payment penalty plus interest.
Can I appeal an MTD ITSA penalty?
Yes. The 'reasonable excuse' framework applies — illness, bereavement, HMRC service outage during the deadline window, software-vendor outage. Appeals are decided case-by-case and require evidence. Routine bad personal financial planning is generally not a reasonable excuse. The first level of appeal is online via your HMRC account; if rejected you can escalate to the First-tier Tribunal.

Related guides

MTD for Landlords 2026: Section 24, Quarterly Submissions, and What Changes Now

UK landlords above £50,000 must file quarterly MTD updates to HMRC — what changes, how Section 24 interacts with MTD and the free software that handles it.

What is Making Tax Digital? The Complete Guide for UK Sole Traders and Landlords (2026)

Making Tax Digital for Income Tax is live for UK sole traders and landlords above £50,000 — what changed, what to do and how to stay compliant for free.

MTD ITSA for £30,000 Earners: What Happens in April 2027

From April 2027, MTD ITSA extends to anyone earning over £30,000 from self-employment or property — here's exactly what you need to do now to prepare.

Get MTD-ready for free

VoxaMTD is free HMRC-recognised software for sole traders and landlords. Quarterly submissions, open banking, AI categorisation — no credit card required.

Start for Free →
© 2026 Voxa Automation Ltd. All rights reserved.