HMRC has confirmed that self-employed workers and sole traders will face £200 fines under the new Making Tax Digital (MTD) penalty regime. The Labour government introduced a points-based late filing penalty system, which replaced previous VAT late filing penalties from January 2023.
Who Is Affected?
Individuals mandated into MTD for Income Tax will be subject to the new regime, as well as those voluntarily participating in the testing program—though only for the annual tax return. At Budget 2025, it was announced that no penalty points for late submission of the first four quarterly updates for individuals joining MTD in April 2026, but quarterly updates must still be submitted before the end-of-year tax return can be filed. This easement does not apply to the end-of-year return for 2026-2027, due by 31 January 2028.
How the Points System Works
When a taxpayer misses a submission deadline, they incur a point. Points accrue separately for VAT and Income Tax. A penalty of £200 is charged when the taxpayer reaches a points threshold, which depends on their submission frequency. Accrued points expire after 24 months if the taxpayer remains below the threshold.
Once a points threshold is reached, all points will expire after the taxpayer meets their return obligations for a set period based on their submission frequency. If a taxpayer continues to miss deadlines after reaching the threshold and being penalized, they will be liable for further fixed penalties for each missed obligation.
Reasonable Excuse and Appeals
Penalties will not be charged, nor points recorded, if the taxpayer has a reasonable excuse for missing the deadline. Taxpayers have the right to appeal against points and penalties.
