Money Matters

MTD for Income Tax penalty delay explained (soft landing period)

Unlock benefits from the MTD for Income Tax soft landing updates and discover how new penalty relief impacts your business for 2026.

Published 15 October, 202613 min read Share

The Making Tax Digital (MTD) for Income Tax soft landing period is first-year penalty relief for sole traders and landlords mandated from April 2026. Late submission of the first four quarterly updates doesn’t attract penalty points, and late payment penalties don’t arise for up to 30 days. You still need to keep digital records, submit quarterly updates, and file your 2026/27 tax return by 31 January 2028.

Key takeaways

• No penalty points for late quarterly updates in your first year: if you were mandated from April 2026, late submission of the first four quarterly updates (due 7 August 2026, 7 November 2026, 7 February 2027, and 7 May 2027) doesn’t attract penalty points.
• The tax return isn’t covered: penalties apply if your 2026/27 tax return, due by 31 January 2028, is late.
• Late payment penalties don’t arise for up to 30 days in your first year, although interest on unpaid tax may still run.
• Your obligations don’t change: HM Revenue and Customs (HMRC) still expects digital records from your MTD start date, and quarterly updates.
• From 2027/28, penalty points apply: quarterly filers get a £200 penalty at four points, and another £200 for every late submission after that.

For many sole traders and landlords, the April 2026 start date of MTD for Income Tax might have come as a surprise, leaving them playing catch-up.

However, announcements at the 2025 Autumn Budget introduced a welcome “soft landing” period with penalty relief, designed to smooth the transition to MTD—and in particular, digital record-keeping and quarterly submissions.

Care needs to be taken, though. This definitely isn’t a get-out-of-jail-free card.

This article breaks down these crucial HMRC MTD for Income Tax updates, explaining how to take advantage of the MTD for Income Tax soft landing period. It also looks at how the new penalty points system works.

Here’s what this article discusses:

What is the MTD for Income Tax soft landing period?

The soft landing period is penalty relief for your first year of MTD for Income Tax: late quarterly updates don’t attract penalty points, and late payment penalties don’t arise for up to 30 days.

The updates that arrived with the 2025 Autumn Budget bring welcome clarity and flexibility, designed to make your initial steps with MTD for Income Tax significantly more manageable.

1. First-year penalty relief for quarterly updates

HMRC has confirmed that, for taxpayers mandated for MTD for Income Tax from April 2026, late submission of the first four quarterly updates does not attract penalty points, provided other conditions are met.

For those mandated from April 2026, here’s when penalty points apply to late quarterly updates:

Quarterly update due	Period covered	Tax year	Penalty points if late?
7 August 2026	6 April 2026 to 5 July 2026	2026/27	No (soft landing)
7 November 2026	6 July 2026 to 5 October 2026	2026/27	No (soft landing)
7 February 2027	6 October 2026 to 5 January 2027	2026/27	No (soft landing)
7 May 2027	6 January 2027 to 5 April 2027	2026/27	No (soft landing)
7 August 2027	6 April 2027 to 5 July 2027	2027/28	Yes
7 November 2027	6 July 2027 to 5 October 2027	2027/28	Yes
7 February 2028	6 October 2027 to 5 January 2028	2027/28	Yes
7 May 2028	6 January 2028 to 5 April 2028	2027/28	Yes
31 January 2028 (2026/27 tax return)	Tax year 2026/27	2026/27	Yes – not covered by the soft landing

The periods above will run from the 1st of each month if you’ve previously arranged with HMRC to use calendar quarters for your quarterly updates, as some businesses have in order to match with their VAT stagger.

This penalty relief does not apply to your end-of-year MTD tax return for 2026/27, which is due by 31 January 2028. Penalties apply for late submission of this final, annual declaration.

To be clear, once you’ve started MTD for Income Tax, from year two onwards penalties apply for late submission of quarterly updates due from 7 August 2027 onwards, as shown in the table above.

Furthermore, the government has not confirmed if the soft landing period will apply to those starting MTD for Income Tax in April 2027 (for the £30,000 gross qualifying income threshold), or April 2028 (for the £20,000 gross qualifying income threshold). More may be confirmed as those dates approach, but nothing is certain.

What this means for those starting MTD for Income Tax in April 2026: This provision offers a crucial grace period.

It’s your opportunity to learn the ropes of MTD-compatible software, refine your digital record-keeping processes, and understand the quarterly submission routine without the immediate pressure of penalty points.

Just remember that HMRC still expects you to maintain digital records from your MTD start date, and submit quarterly updates.

So, think of it as an opportunity to iron out any creases in your new system.

2. Extended grace period for late payments

During your first year in the new penalty system, HMRC will, in the first year, allow up to 30 days before late payment penalties arise under the new regime, although interest on unpaid tax may still run.

What this means: This enhanced grace period provides invaluable flexibility for your cash flow management. As you adapt to potentially new ways of monitoring your tax liability, it allows you a little more time to ensure funds are available without incurring immediate penalties.

3. Deferrals and exemptions for specific groups

Recognising unique circumstances, some taxpayer groups will have their start date deferred or be permanently exempt from MTD:

• One-year deferral (until April 2027): This applies to recipients of trust and estates income, individuals who use averaging adjustments, those eligible for qualifying care relief, and non-UK resident foreign entertainers or sportspeople. If you fall into one of these categories, and were theoretically required to use MTD as of April 2026, you should continue to meet your existing Self Assessment obligations as usual until April 2027.
• Permanent exemptions: Businesses under a deputyship, as appointed by the Court of Protection, are now permanently exempt from MTD. This builds on the Spring Statement 2025 announcement that businesses who have a Power of Attorney are also exempt. If you fall under these criteria, you have clarity on your permanent exclusion from MTD requirements.

4. Policy and guidance updates

The journey to full MTD implementation is ongoing, so staying informed is key:

• Legislation for the MTD for Income Tax updates was included in the Finance Bill 2025-26, which received Royal Assent as Finance Act 2026 on 18 March 2026.
• Check HMRC’s guidance on GOV.UK for the latest position on the penalty easements and deferrals.
• Check GOV.UK for HMRC’s latest update on the remaining restrictions that prevent certain taxpayers from signing up for mandatory MTD.

Why should you embrace MTD for Income Tax now?

Embracing MTD for Income Tax now gives you a real-time view of your income, expenses, and likely tax bill, which helps you manage cash flow and make better decisions.

Some may find the idea of quarterly updates onerous, but the core design of MTD is to provide you with a much clearer, more real-time understanding of your financial position.

Embracing MTD offers significant benefits that can genuinely transform your business’s financial health and decision-making.

• Real-time visibility: By regularly updating your digital records and making quarterly updates, you gain a live snapshot of your income, expenses, and, crucially, your approximate tax liability. This eliminates the end-of-year scramble and the dreaded surprise tax bill.
• Improved cash flow management: When you know roughly how much tax you’ll owe, you can put money aside consistently. This allows for far better financial planning, so you aren’t guesstimating your tax bill and risking a shortfall when it comes to buying a new van, investing in equipment, or simply covering personal expenses.
• Smarter decisions: Accurate, up-to-date financial data also empowers you to make smarter business decisions. You can identify trends, understand your profitability throughout the year, and react promptly, rather than waiting for your accountant to crunch numbers months later.

Can you ignore quarterly updates during the soft landing period?

No. The soft landing only removes penalty points for late quarterly updates. Digital record-keeping, quarterly updates, and the tax return are all still required.

It’s not unnatural to think that, because there’s no penalties for late submission, you can simply ignore the first four quarterly updates, and simply file a digital tax return on 31 January 2028.

While the penalty relief offers you flexibility, Chris Downing—Director of Accountants and Bookkeeping at Sage and a former accountant—offers a warning against postponing your MTD preparations:

“Firms shouldn’t mistake the soft landing for a free pass. The compliance obligations are still in force—digital recordkeeping, timely quarterly updates, and the full MTD Tax Return by January 2028. All the soft landing does is give you space to make mistakes safely. Ignoring that opportunity simply concentrates the risk later.”

If you use the penalty easement to deliberately skip updates or do a superficial job of record-keeping, you will also cheat yourself out of vital benefits:

• You lose real-time visibility of your business, undermining the core advantage MTD offers for your cash flow and business planning.
• Delaying the inevitable learning and compliance merely pushes the problem down the road. You’ll still have to switch to digital records and make sense of the system eventually, likely under more pressure. By then, the penalty-free soft landing period will have ended.
• Grappling with a new system at the last minute significantly increases your risk of making errors or missing deadlines. Once the soft landing period concludes, the standard penalty regime takes full effect. Why not use this current grace period to master the system and build confidence, rather than deferring the pain and inviting potential penalties?

How does the MTD for Income Tax penalty points system work?

You get a penalty point for each late submission, and a £200 penalty once you reach your points threshold, which depends on how often you file.

It’s important to have a clear grasp of the penalty points system, which will be rolled out not only for MTD users but also for all Self Assessment taxpayers from April 2027.

Under the new system, simply filing a return late no longer triggers an automatic fine.

Instead, you’ll receive one penalty point every time you miss a submission deadline. This penalty applies only to the particular tax for which you’ve made the error. For example, if you miss an update for MTD for Income Tax, you might get penalty points. If you also miss a tax return date for VAT, you might also get points—but the two systems and points tallies are entirely separate.

Once you accumulate a certain number of these points—known as your personal points threshold—HMRC will then issue a £200 financial penalty. Every subsequent late submission will then incur an additional £200 charge.

Your points threshold depends on how often you’re required to submit returns.

Businesses that file more frequently have more opportunities to make mistakes, so their threshold is higher. For example, if you file annual tax returns, you’ll receive a penalty at two points. For quarterly filers, the penalty is issued at four points, and monthly filers have a threshold of five points.

Here’s how the thresholds and reset periods compare:

How often you file	Points threshold for a £200 penalty	On-time filing needed to clear points	Example
Annually	Two points	24 months	Annual tax returns
Quarterly	Four points	12 months	MTD for Income Tax quarterly updates
Monthly	Five points	Six months	Monthly returns

These penalty points don’t stay on your record indefinitely. They expire after a period of good compliance, provided you’ve also submitted any outstanding returns. The length of this good compliance period also varies by your filing frequency. If you file annual tax returns, you’ll need to file on time for 24 months to clear your record. Quarterly filers must file on time for 12 months, and monthly filers need to file on time for six months.

Overall, this new system is designed to be more forgiving of genuine, one-off mistakes, giving you a chance to improve. However, it still takes persistent lateness seriously.

For more detail, read Making Tax Digital for Income Tax penalties: HMRC’s new systems explained.

How should you prepare for MTD for Income Tax?

To prepare, check your start date, review your systems, choose MTD-compatible software, consider signing up voluntarily, and get professional advice.

1. Check your start date: Your first step is to determine your MTD start date. Confirm if your business was mandated for April 2026 or is mandated from April 2027 or April 2028 (based on the MTD thresholds), or if you qualify for a deferral or permanent exemption. This will set your personal timeline. If HMRC has already signed you up, read HMRC signed me up for MTD for Income Tax. What should I do now?
2. Evaluate your systems: Are you still using spreadsheets or a basic accounting system to manage your income and expenses? Assess how digital-ready your current methods are and identify what changes are needed.
3. Explore MTD-compatible software: Begin researching available software solutions that integrate with MTD for Income Tax. Many providers offer specific tools for sole traders. Consider trialling different options to find one that fits your workflow best.
4. Consider voluntary sign-up: You don’t have to wait, and can choose to voluntarily sign up for MTD now. This offers an excellent dry run opportunity. By starting early, you can become familiar with digital record-keeping and quarterly submissions, gaining valuable experience and confidence with the new system. If you’re due to start MTD for Income Tax in April 2027 or April 2028, signing up voluntarily now gives you a dry run. The government hasn’t yet confirmed whether the soft landing period will apply to those start dates. This early start is a fantastic way to refine your processes before mandatory adoption, ensuring you’re well-prepared from day one.
5. Get professional advice: Don’t hesitate to consult an accountant or tax adviser for professional advice. They can provide tailored guidance, help you choose and implement the right software, set up your new digital systems, and help you create a strategic plan for a smooth transition during the soft landing period.

Final thoughts on the MTD soft landing period

This MTD soft landing isn’t a delay. It’s a vital opportunity. With new flexibility around penalties and payment deadlines for your first year of MTD for Income Tax, sole traders and landlords now have a unique chance to prepare effectively.

By proactively preparing your digital systems, and potentially even opting for a voluntary “dry run” now, you can transform the challenge of MTD into an opportunity. Embrace this extra time to plan ahead, seek expert advice, and transition to digital record-keeping with confidence. Ultimately you will benefit from a clearer, more efficient view of your business’s finances.

MTD for Income Tax soft landing: FAQs

Is there a penalty for a late MTD quarterly update in the first year?

No penalty points apply to late quarterly updates in your first year if you were mandated from April 2026. Late submission of your first four quarterly updates (due between 7 August 2026 and 7 May 2027) doesn’t attract penalty points, provided other conditions are met.

Does the soft landing period cover the MTD tax return?

No. The soft landing period doesn’t cover the tax return, so penalties apply if your 2026/27 tax return isn’t submitted by 31 January 2028.

Does the soft landing period apply if I start MTD for Income Tax in April 2027?

The government hasn’t confirmed whether the soft landing period will apply to those starting in April 2027 or April 2028.

How many penalty points before I get an MTD penalty?

Quarterly filers, including those submitting MTD for Income Tax quarterly updates, get a £200 penalty at four points. Every later late submission adds another £200. Points expire after 12 months of on-time filing, provided any outstanding returns are submitted.

Do I still need to submit quarterly updates during the soft landing period?

Yes. HMRC still expects you to keep digital records from your MTD start date and to submit quarterly updates. The soft landing only removes penalty points for late submission. For more, read MTD quarterly updates: Everything you need to know.

Browse more topics from this article

• Making Tax Digital for businesses
• Making Tax Digital for Income Tax