Are There MTD Penalties in 2026/27? The Transition Year Explained

Quick answer:

For the 2026/27 tax year, HMRC has confirmed that late-submission penalties will not apply to MTD for Income Tax quarterly updates, but this is a soft landing to let you practise, not a reason to delay, because the quarterly updates and the 31 January final declaration are still legally required and other penalties (such as late payment) still apply.

This transitional relaxation is one of the most misunderstood parts of the MTD rollout. Here’s what it actually means.

What penalties are waived in 2026/27?

HMRC has confirmed that late-submission penalty points will not be charged on quarterly updates during the first mandated year, 2026/27. The aim is to give the first wave of sole traders and landlords room to test their software, build a routine, and find gaps before enforcement tightens. See the full mechanism in MTD penalties and the points system.

What still applies during the transition year?

The relaxation is narrow. You must still:

Keep digital records from 6 April 2026, see digital record keeping for HMRC
Submit your quarterly updates, they’re still required, even if a late one won’t draw a point this year
File your final declaration by 31 January, see MTD deadlines and timeline
Pay your tax on time, late-payment penalties and interest are not waived

Why is waiting a mistake?

The penalty waiver is a window to practise, not permission to ignore MTD. Recent figures suggest a large share of eligible taxpayers still haven’t registered, which means many will scramble as the relaxation ends. Businesses that use this year to build the habit, connecting a bank feed, getting comfortable with quarterly submissions, will be far stronger when penalties bite in 2027/28. Start with how to sign up for MTD income tax.

How does CleanBooks AI help you use the transition year well?

CleanBooks AI lets you build the routine with almost no effort: your bank feed flows in, Keeva™ categorises automatically, and quarterly updates are assembled for you to confirm. By the time penalties apply in full, filing is already a non-event. Your live tax estimate keeps your payment on track, and the built-in penalty score tracker shows exactly where you stand, so the late-payment penalties that are not waived never catch you out.

Use the practice year wisely. Get set up free, 6 months free, no credit card now.

Frequently asked questions

Are there penalties for MTD in 2026/27?

Late-submission penalties on quarterly updates are waived for the 2026/27 transitional year, but quarterly updates and the 31 January final declaration are still required, and late-payment penalties and interest still apply.

Does the MTD penalty waiver mean I can skip quarterly updates?

No. The updates are still legally required; only the late-submission penalty is relaxed for the first year. Skipping them defeats the purpose of the practice window and leaves you unprepared when penalties resume.

When do full MTD penalties start?

The soft-landing applies to the first mandated year. After the transitional period, the standard points-based late-submission penalty system applies in full, so building the habit during 2026/27 is strongly advised.

Are late-payment penalties waived too?

No. The waiver covers late submission of quarterly updates only. You must still pay your tax on time, as late-payment penalties and interest continue to apply during the transition year.