Tax & Compliance – Making Tax Digital
Joining Making Tax Digital in April 2027? You may not get the same soft landing
Over a million sole traders and landlords enter MTD for Income Tax next April. As the rules stand, they face late filing penalty points from their first quarter, while this year’s joiners were given twelve months’ grace.
If your self-employment and rental income together sit above £30,000, HMRC expects you inside Making Tax Digital for Income Tax from 6 April 2027. Around 1.08 million people are in that position. Most of them have not yet heard the part that matters: the late filing concession given to this year’s joiners expires before they arrive. The Association of Taxation Technicians has asked the Chancellor to extend it at the forthcoming Budget – whether or not that succeeds, if you are in the 2027 group the sensible move is to plan as though no relief is coming.
The rollout, by cohort
| Entry date | Threshold | Status |
|---|---|---|
| April 2026 | Over £50,000 | First wave. Already filing quarterly. |
| April 2027 | Over £30,000 | Around 1.08 million people. No late filing easement as things stand. |
| April 2028 | Over £20,000 | Final announced wave. |
How is MTD being phased in?
Waves based on gross qualifying income
MTD for Income Tax is being switched on in waves, based on your qualifying income – gross income from self-employment and property combined, before any expenses come off. Once you are in, the annual Self Assessment routine is replaced by digital record keeping, four quarterly updates a year sent from compatible software, and a final declaration to close the year.
How do the new penalties work?
Late filing is points-based; late payment is stepped
Late filing: every late quarterly update or late final declaration earns a point. Points cost nothing on their own, but at the threshold – four points for someone on quarterly updates – HMRC charges £200. Further late submissions at that level trigger further £200 charges until you have a clean run of on-time filings.
Late payment: nothing happens for the first fortnight after the due date. From day 15 a percentage penalty applies, rising again after day 30, with daily interest on top. Setting up a Time to Pay arrangement with HMRC stops the clock.
The easement the 2026 group received
Two concessions announced at the 2025 Budget
At the 2025 Budget the government announced two concessions for people newly caught by the penalty regime through MTD: for the 2026/27 tax year only, no penalty points for late quarterly updates; and no day 15 late payment penalty in anyone’s first year under the new rules.
The late payment relief follows the taxpayer. The late filing relief is tied to one tax year. Start in April 2027 and it has already expired.
Why the 2027 cohort has a stronger case
The argument for extending the soft landing rests on who is actually joining next year. HMRC’s own figures show the 2027 group is noticeably less prepared than the first wave.
Add the fact that many of these businesses are smaller, with less admin capacity, and it is hard to see why they should face a tougher penalty environment than the larger businesses who went first. Extending the filing easement would also make the two halves of the regime consistent with each other, and ease the load on accountants absorbing a million new quarterly filers on top of the first wave.
The counter argument
Not everyone in the profession wants it extended
The concern is that removing the threat of penalties removes the urgency. The first wave’s figures give that view some weight: of an estimated 864,000 taxpayers in the 2026 cohort, only around 436,000 had filed their first quarterly update by the August deadline – a compliance rate of about half.
It would be a stretch to blame the soft landing for all of that. Sign-up friction, software gaps, unclear communications and simple unawareness all played a part. HMRC has since said it will start signing up the remainder of the 2026 cohort itself, which should put to bed any idea that MTD is optional just because points are paused.
What this means for you in practice
Our advice to clients in the 2027 group is the same whatever the Budget decides:
| Step | Why it matters |
|---|---|
| Treat April 2027 as firm, penalties live from day one | If an extension is granted you lose nothing by being ready early. If not, you avoid £200 charges and interest for entirely avoidable reasons. |
| Check your qualifying income now, on the right year | For April 2027 entry, HMRC looks at your 2025/26 return, due 31 January 2027 – gross figures, not profit. Landlords with modest rental income and a side trade are regularly caught out here. |
| Start keeping digital records this tax year | Quarterly updates are only painful when the bookkeeping is done four times a year in a panic. Run the books monthly and the first update in summer 2027 is a button press. |
| Sort out the year end mismatch | MTD reporting runs to 5 April (or 31 March by election), so accounting periods that don’t line up with the tax year need tidying before you enter. |
| Decide who is doing the filing | With 37% of the cohort unrepresented, HMRC’s helplines will be under strain. An accountant filing updates and monitoring your penalty position is often cheaper than one missed deadline. |
Who this affects most
Anyone outside a limited company, past £30,000 gross
MTD for Income Tax bites hardest on businesses that do not run as limited companies. If your gross income is heading past £30,000, the 2027 start date applies to self-employed tradespeople and CIS subcontractors, sole trader e-commerce sellers on Shopify, Amazon and Etsy, content creators and affiliate marketers with self-employed income, and landlords with a few properties alongside a trade.
Is A2Z the right fit for you?
Frequently asked questions
Do I have to join Making Tax Digital in April 2027?
Yes, if your combined gross self-employment and property income on your 2025/26 tax return is above £30,000. HMRC will write to you, but the obligation applies whether or not the letter arrives.
Will there be penalties for late quarterly updates in 2027/28?
As things stand, yes. The no-points concession only covers the 2026/27 tax year. The ATT has asked for it to be extended to the 2027 cohort, but no decision is expected before the Budget.
Does the late payment easement still apply if I join MTD in 2027?
Yes. The day 15 late payment penalty is waived in any taxpayer’s first year under the new rules, regardless of which year they join.
What software do I need for MTD for Income Tax?
Any HMRC-recognised MTD for Income Tax product. Most of our clients use QuickBooks or Xero. Spreadsheets with bridging software are permitted but rarely the easiest route once quarterly filing starts.
Can my accountant file the MTD quarterly updates for me?
Yes. An authorised agent can keep the digital records, submit each quarterly update and the final declaration, and track your penalty point position.
Ready before April 2027
If you are in the 2027 cohort and want the quarterly filing, digital bookkeeping and penalty position handled for you, we can set you up well ahead of time.
MTD-ready sole trader packages start from £250+VAT depending on scope, transaction volume and turnover. Always agreed up front, never a surprise. Or call us now on 01224 042961.
