Back to Blog

MTD ITSA Penalty Rules Year 1 (2026/27): What's Penalised, What's Not

By PocketReceipt Team · 10 May 2026 · 8 min read

What HMRC's "soft landing" actually means

From 6 April 2026, sole traders and landlords with qualifying income above £50,000 must submit four MTD ITSA quarterly updates on top of their annual final declaration. Missing a quarterly update normally adds a penalty point under the points-based regime — and 4 points triggers a £200 fine.

For the 2026/27 tax year only, HMRC has waived penalty points for missed quarterly updates. You can miss one, two, three, or all four quarterly deadlines and start the 2027/28 tax year with a clean slate.

This is a one-off concession for the cohort joining MTD ITSA in April 2026. Anyone brought in from April 2027 onwards (the £30,000 threshold cohort) will not get the same grace period.

What the soft landing does NOT cover

1. The final declaration deadline (31 January 2028)

Your annual return for 2026/27 is still due by 31 January 2028. Miss it and the standard Self Assessment late filing penalties apply: £100 immediately, then £10/day for up to 90 days, then larger penalties at 6 and 12 months late. No soft landing here.

2. Late payment of tax

Your tax bill for 2026/27 is still due 31 January 2028 (with payment-on-account dates as usual). The new points-based late-payment regime applies in full from April 2026:

• 0–15 days late: Standard penalty waived for taxpayers in their first year, giving 30 days total to pay before the first late-payment penalty kicks in
• 16–30 days late: 3% of the unpaid tax
• 30+ days late: Another 3% of the amount still unpaid, then daily interest at 4% annualised

The 15-extra-days grace for first-year taxpayers is genuine but narrow. It's not a free pass — it just gives you 30 days instead of 15 to pay before the first penalty.

3. Deliberate or careless errors

If a quarterly update or final declaration contains a careless or deliberate error, the standard inaccuracy penalty regime applies — up to 100% of the additional tax owed for deliberate errors. Soft landing covers missing the deadline, not lying on what you submitted.

4. Voluntary registrations

If you sign up for MTD ITSA voluntarily before April 2026 (some early adopters did during HMRC's pilot), you're on the standard penalty regime from your join date. The soft landing applies specifically to the mandated 2026/27 cohort.

How the points-based system works (from 2027/28 onwards)

The same regime that already applies to VAT returns rolls into MTD ITSA from April 2027:

• Each missed deadline = 1 penalty point
• 4 points (for quarterly submissions) = £200 fine
• Every further missed deadline = another £200 fine
• Points expire after 24 months of full compliance — but only if you've completed every required submission for the previous 24 months on time

For monthly submissions the threshold would be 5 points; for annual it's 2 points. MTD ITSA is quarterly, so the 4-point threshold applies.

The strategic implications of the soft landing

Practice on a real quarter, then submit late if needed

The first quarterly deadline is 5 August 2026 covering profit for 6 April – 5 July 2026. Many sole traders will be doing their first-ever quarterly digital submission. You can use Q1 as a learning round — even if you submit late, no points. By Q2 (5 November 2026) you'll have the workflow figured out.

This is HMRC's actual stated rationale: avoid penalising people for novel software friction in year one.

Don't extend the logic to payments

The most expensive year-1 mistake will be assuming the soft landing also covers late payment. It doesn't. If your 2026/27 tax bill is £6,000 and you miss the 31 January 2028 deadline by a month, you owe ~£180 in late-payment penalties on top of the tax (3% of £6,000), plus daily interest. The 15-day grace gets you to 30 days; beyond that, the meter runs.

Don't extend the logic to the final declaration

It's tempting to read "soft landing on quarterly updates" as "soft landing on MTD ITSA generally". It's not. The annual final declaration is still under standard Self Assessment penalty rules: £100 immediate, escalating from there. Set a separate calendar alarm for 31 January 2028 — independent of any quarterly reminders.

What you still need to submit (even with no penalty risk)

Quarterly updates are still legally required during the soft landing year. The absence of penalty points does not make submissions optional. You're choosing between:

• Submit late, no points — fine, but your final-declaration math gets harder if you've never reconciled the quarterly numbers
• Submit on time — builds the muscle for 2027/28 when penalties bite, and gives you a running estimate of your tax liability throughout the year

The actual 2026/27 deadlines (write these down)

• 5 Aug 2026 — Q1 quarterly update (covering 6 Apr – 5 Jul). Soft landing applies.
• 5 Nov 2026 — Q2 quarterly update (covering 6 Jul – 5 Oct). Soft landing applies.
• 5 Feb 2027 — Q3 quarterly update (covering 6 Oct – 5 Jan). Soft landing applies.
• 5 May 2027 — Q4 quarterly update (covering 6 Jan – 5 Apr). Soft landing applies.
• 31 Jul 2027 — Second payment on account for 2025/26. Standard late-payment penalties.
• 31 Jan 2028 — Final declaration for 2026/27, balancing payment, first payment on account for 2027/28. Standard penalties + 15-day extension on first late-payment penalty.

Bottom line

HMRC's soft landing is real but narrow. It removes the year-1 risk of accidental £200 fines from missed quarterly submissions while you and your software are bedding in. It does not remove the risk of late payment, late annual returns, or sloppy submissions. Treat 2026/27 as a learning year for the quarterly cadence, but pay the tax and file the annual return exactly on time.

Sources: HMRC MTD ITSA collection at gov.uk/government/collections/making-tax-digital-for-income-tax. Self Assessment penalties at gov.uk/self-assessment-tax-returns/penalties. Points-based late submission regime at gov.uk/guidance/penalty-points-and-penalties-if-you-submit-your-vat-return-late (same regime extending to MTD ITSA from April 2027).