HMRC has confirmed that 401,000 sole traders and landlords who missed the first quarterly Making Tax Digital (MTD) for Income Tax deadline will face a £200 fixed penalty from the next tax year. The announcement follows the release of figures on Wednesday showing that 436,000 taxpayers submitted their first quarterly report on time.
First Wave Numbers and Deadline Compliance
In total, 864,000 sole traders and landlords are in scope for the first wave of MTD for Income Tax. The programme will be extended to those earning more than £30,000 from April 2027, and to those earning more than £20,000 from April 2028.
No penalties were issued for late quarterly updates during the first year of MTD for Income Tax, meaning the 401,000 who missed the deadline were spared. However, from the second year onwards, points-based penalties will apply where taxpayers miss a deadline.
Penalty System Details
Taxpayers will receive one penalty point for each missed quarterly deadline. Once a taxpayer accumulates four points, a £200 fixed penalty will apply. This means that the 401,000 who failed to file in the first wave are now at risk of incurring this fine if they do not comply in the second year.
Elsa Littlewood, a private client services tax partner at BDO, told Birmingham Live: “Clearly, HMRC is pleased that 436,000 sole traders and landlords have submitted their first quarterly Making Tax Digital for Income Tax report on time – and this is despite the fact that no penalties will apply in the first year.”
Concerns Over Unrepresented Taxpayers
Littlewood added: “However, this is just half of the estimated 864,000 taxpayers who should have reported in the first wave. Those who are yet to file should take action now. Those taxpayers in scope should check they are signed up, that their software is compatible and their MTD summary is submitted as soon as possible.”
She continued: “Some may find the process challenging at first but there are some good explanatory materials on the gov.uk website to help, and taxpayers may find that the process helps them to keep their records up-to-date. We would assume that the majority of those who met the deadline are taxpayers who are represented by agents. The worry for HMRC will be the third of people in scope who are not yet even signed up to MTD, most of whom may well be unrepresented.”
Littlewood concluded: “The question now is what HMRC will do to increase compliance among this group who are yet to engage. This will be key for the rollout of the scheme to lower income groups from next April where there is a stronger likelihood that they will not be using an agent to file their reports.”
