Stricter late payment penalties confirmed under Making Tax Digital for Income Tax

The Chancellor’s Spring Statement has confirmed a sharp increase in late payment penalties for taxpayers falling under the scope of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA).

These changes were effective from 1 April 2025 and will significantly increase the cost of missing tax deadlines.

MTD for ITSA is already in place for some, but its reach is expanding.

From April 2028, it will apply to sole traders and landlords with income over £20,000, bringing around 900,000 more people into the system.

Penalty charges are increasing sharply

Currently, taxpayers are given a short 15-day window after the deadline in which to make payment without penalty.

After that point, interest and fines are charged on a sliding scale:

• Day 15 – two per cent
• Day 30 – four per cent
• Ongoing interest from day 31– four per cent per year

As of 1 April 2025, these rates were increased to:

• Day 15 – three per cent
• Day 30 – six per cent
• Ongoing interest from day 31 – ten per cent per year

Although the 15-day grace period still applies, missing the payment deadline now carries a far higher financial risk.

These changes only apply to payments made under MTD for ITSA, but for those affected, the cost of non-compliance has become much steeper.

Staying on top of your obligations

Late payment charges are particularly problematic for those with irregular income, limited cash reserves, or those still adjusting to digital reporting requirements.

To reduce the risk:

• Keep your bookkeeping updated throughout the year
• Regularly set aside funds for tax liabilities
• Prepare and submit your tax return as early as possible
• Ensure your MTD for ITSA software is running smoothly

With the financial consequence much greater than it was, planning in advance will help reduce exposure to avoidable penalties.

If you are unsure how these changes will affect you, contact us today for support.